The Mutual Fund Show: Why Small-Cap Space Warrants Investors' Caution
Although the risk-reward ratio may be unfavourable, the small-cap universe is still worth examining, says Tata Mutual Fund's Padiyar.
Companies that comprise the small-cap segment will now be in capital expansion mode following the recent slump in the broader markets, according to Chandraprakash Padiyar, fund manager at Tata Mutual Fund.
“It’s a good beginning,” he said, on the correction in the small-cap universe on The Mutual Fund Show. “We actually hope for some more consolidation in the market.”
Although the risk-reward ratio may currently be unfavourable, the small-cap universe is still worth examining, he said. “By focusing on superior stock selection, we hope to deliver strong performance,” Padiyar said, on the company's stock selection.
He spoke about the importance of managing expectations. “Profit margins have improved across sectors," Padiyar said. "Incrementally, one needs to be very selective in what you buy and your expectations need to be different.”
“Every company will not be able to deliver high top-line growth and leading to high bottom-line," he said. "So, choosing the right business will be important. One needs to be very selective in today's market.”
Investor expectations have risen, as over the last few years, the small-cap segment has delivered higher returns. “I do sense that investors expect 20% plus returns continuing in the immediate future.”
The fund manager also said earnings in the small-cap segment will take time to recover. There is going to be a gap maybe in FY25-FY26, where you will see slightly slower earnings growth, Padiyar said. “Small caps will grow after FY26.”
Padiyar also projected a new phase for businesses in India. “(There’s a) shift visible in manufacturing in India, as (the) new phase for business to grow faster in FY27 and beyond,” he said.
