Mumbai, October 9, 2026: Monarch AIF has identified continued attractive bottom-up investment opportunities in quality smallcap companies over the next 12 to 24 months, citing resilient corporate balance sheets, healthy domestic demand, improving cash flows and sustained capital expenditure intentions.
The firm remains constructive on the smallcap segment despite recent gains. Between February 25 and October 7, the Nifty 50 index declined by over 11%, while the Nifty Small Cap 250 and Nifty Micro Cap 250 delivered returns of approximately 11.7% and 22% respectively. This has resulted in a performance gap of nearly 23 percentage points in favour of smallcaps and over 33 percentage points in favour of microcaps compared to the headline index, according to Abhisar Jain, Fund Manager, Monarch AIF.
Strong fundamentals support smallcaps
Monarch AIF noted that corporate balance sheets are in excellent shape, with FY26-end figures expected to improve on FY25 levels. The outlook for earnings growth across market capitalisations is reinforced by healthy automobile sales, credit growth in the high teens, and stronger-than-expected demand from consumer-facing businesses.
Jain said that low corporate leverage, improving cash flows and robust capital expenditure intentions continue to support smallcaps. He added that policy initiatives targeting sectors such as semiconductors, aerospace and renewable energy, along with efforts to strengthen core industries like automotive and defence, could enhance growth visibility and encourage further investment by Indian companies.
Opportunities in select largecaps
While smallcaps remain compelling, Monarch AIF also sees attractive value emerging in select large-cap companies, particularly within BFSI, insurance, telecom and segments of the IT sector. The firm emphasised the importance of identifying individual businesses with strong balance sheets, durable growth prospects and sensible valuations, rather than relying solely on index-level performance.
12–24 month outlook for smallcaps
Monarch AIF’s outlook is based on a multi-year investment framework. The firm believes quality smallcaps can deliver attractive investment outcomes over the next 12 to 24 months, with returns increasingly driven by earnings growth and business fundamentals.
“Global macroeconomic uncertainties could continue to trigger periodic volatility. However, resilient corporate fundamentals and improving domestic growth conditions provide opportunities for active investors. Disciplined bottom-up stock selection, supported by patience and a focus on valuations, remains key to navigating the market environment,” Jain said.
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