Small & midcap funds remain top bets for investors as largecap inflows slump

ET Intelligence Group: Investors poured ₹38,043 crore into mid-cap funds in the first half of FY27, taking their share of total equity inflows to a five-year high of 20%, according to Accord Fintech data. Small-cap funds also remained in favour, attracting ₹42,212 crore and accounting for 22.6% of equity inflows, their highest share since first half of FY24. In contrast, large-cap funds continued to lose steam, attracting just ₹4,575 crore and contributing a mere 2% to total equity inflows.

Higher returns have driven the strong inflows into small- and mid-cap funds. In the first half of FY27, the BSE 150 MidCap Index rose 1,877 points, or 13%, while the BSE 250 SmallCap Index gained 1,349 points, or 24%. In contrast, the BSE 100 advanced 853 points, or 3.6%, and the Sensex rose just 533 points, or 0.7%.

Experts say strong inflows into mid- and small-cap funds do not necessarily mean their valuations are becoming expensive. What matters more is whether corporate earnings are growing fast enough to justify stock prices.

“Earnings are a vital part of valuations while flows have tended to chase returns with a lag. The last two years show that despite flows into mid and small caps, multiples have come down, not gone up,” Hari Shyamsunder, VP & Senior Institutional Portfolio Manager -India Equities, Templeton Global Investments told ET.

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Nifty Midcap 150 forward Price to Earnings (P/E) multiple is around 22.5x now against about 36x in September 2024 because earnings have grown faster than prices, he added.

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Higher inflows have also raised the share of small and mid cap funds in equity asstes under management (AUM). The combined net AUM of small and mid cap funds increased nearly 24% year-on-year to ₹9.8 lakh crore as of September 2026, taking their share in equity AUM to 26% from 23.5% a year earlier. Total equity AUM increased nearly 12% to ₹33.7 lakh crore.