Sunil Sharma, Chief Investment Strategist, Ambit Global Private Client
For Sunil Sharma, 2025 was a year of major differences in the market. Large cap investors are up 11% this year, supported by improved fundamentals and earnings visibility. The nice earnings are growing 15.3% year-on-year, with revisions turning positive after November’s results, reinforcing Sharma’s view that large caps enter 2026 from a position of strength.Midcaps, he argues, have also done better than the headlines suggest. After gaining 44.6% in 2023 and 24.5% in 2024, midcaps are still set to gain 5-6% in 2025. With forward valuations tempered to around 27.8 times and earnings growth plus revisions above 20%, Sharma believes fundamentals will dominate returns next year.
However, small caps remain the laggards. With a return of -7% in small caps and -19% in micro caps, Sharma is wary of index exposure. Earnings growth and revisions were weak, making broad participation risky. His outlook for 2026 is that investors should invest selectively, bottom-up through experienced fund managers. In terms of market capitalizations, he expects active management to outperform passive strategies as stock and sector diversification increases.
V Srivatsa, Executive Vice President and Fund Manager, UTI AMC
V Srivatsa strikes a more cautious but balanced tone. He sees earnings prospects improving for both midcaps and smallcaps, which should help stabilize returns after a difficult year. However, valuations remain the main obstacle. Mid- and small-cap indices remain more expensive than large-caps, and Srivatsa expects this difference to matter in 2026. In his view, large caps are better placed to lead the recovery given their valuation comfort and more predictable earnings. While smaller stocks may recover, leadership will likely remain with companies that offer scale, balance sheet strength and earnings visibility.
Nilesh Shah, Managing Director, Kotak Mahindra AMC
For Nilesh Shah, the risk in small caps has not yet completely disappeared. While the sharp excesses of previous years have subsided, Shah believes there is still froth in select counters, where valuations assume earnings growth that may not materialize.
A deeper concern, he says, lies in the ownership structure. Many small cap stocks have a limited free float, with shares concentrated in a few hands. This concentration has helped drive valuations higher, but it also creates vulnerability.
Dinshaw Irani, CEO, Helios Mutual Fund
Dinshaw Irani offers a more constructive view on the prospects. He believes that the midcap and smallcap segments in India will look attractive again, especially on a growth basis. According to Irani, the downward earnings trend that started around September last year appears to have bottomed out by mid-2024.
What surprised him most was the sharp recovery in mid- and small-cap earnings during the September quarter, even as sentiment remained weak and comparisons were favourable. This resilience, according to Irani, suggests that fundamental conditions beneath the surface are improving. While risks remain, he sees selective opportunities emerging as gains regain momentum.
Trideep Bhattacharya, Fund Manager, Edelweiss AMC
Valuation discipline is central to Trideep Bhattacharya’s assessment. He notes that large-cap valuations have cooled to near their 10-year average of about 20.5 times forward one-year earnings, making them relatively attractive.
Small caps and mid caps, on the other hand, remain expensive by historical standards. Small caps trade at around 25.1 times forward earnings, well above their long-term average of 16.7 times, while midcaps trade at 29.2 times, compared to a historical norm of 23.1 times. Bhattacharya says the worst of the froth has been released, but emphasizes that the segment is still not cheap and investors should not confuse correction with value.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times.)
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