Varun Goel, Senior Fund Manager at Mirae Asset Investment Managers (India), expects high single-digit earnings growth from the broader market in Q1 FY26. In an interaction with Business Today, he also stated that Nifty companies may deliver 12% growth in FY26, while the growth in the small-cap space could be higher.
He further shared his views on the outlook of broader markets, themes, and strategies that may create robust wealth for investors in the long run. Edited excerpts:
BT: Smallcaps have seen some recovery. Do you see this as the start of another leg of the ongoing bull run?
Goel: Over the last twenty years, the small-cap segment has delivered strong earnings growth and market returns. Primarily, smaller companies often exhibit higher long-term growth potential in both earnings and business expansion. Their relatively unestablished nature makes them more agile, allowing them to respond swiftly to industry shifts and market disruptions. This adaptability often translates into faster growth, which the stock market tends to reward. However, it’s important to note that this higher growth potential comes with correspondingly higher risk.
While global events remain a risk, we expect earnings growth for India small caps to bounce back from a cyclical low in FY25. Tax relief measures, high government infrastructure spending, and an accommodative stance by the RBI are expected to contribute to a growth rebound.
Smallcaps are inherently more volatile, and sharp corrections are part of the cycle. historical trends show that when macro and sentiment-related headwinds ease, this segment tends to rebound strongly. We take a bottom-up view when it comes to picking stocks in this space. We look at investing in companies that are backed by strong fundamentals such as earnings growth, capital efficiency, and a clear path to scalability.
BT: Most IPOs that land on the street are from the mid and small-cap space. What are your criteria for investing in such issues?
Goel: We are focusing on businesses that have robust earnings visibility, prudent balance sheets, and scalable business models, which are available at reasonable valuations. Over a 3-5-year horizon, these can emerge as meaningful compounders.
BT: The smallcap universe is the biggest one with nearly 4,000 actively traded scrips. Where is the opportunity for investors?
Goel: The opportunity for bottom-up stock picking is highest in the small-cap space. There have been at least 70-80 small-cap IPOs each year in the last 3 years, and we expect this trend to continue. Also, valuations in the smallcap segment are not uniform. While some areas are trading at stretched levels, others offer attractive entry points. One should avoid getting carried away and chasing overheated stories.
BT: What is your take on the broader market given underlying tensions of tariffs and geopolitical issues? What kind of returns can one expect from headline indices in the midterm?
Goel: FY26 should be the year for a growth rebound for India. We expect that significant monetary easing, tax cuts, and good agricultural production, and a strong recovery in central government capex spending should lead to a recovery in GDP growth and corporate earnings. Geopolitical tensions-whether stemming from trade disruptions, regional conflicts, or energy market instability-are undoubtedly contributing to near-term volatility. However, when we move past the headlines, the Indian growth story continues to look promising. Credit growth and corporate earnings should recover, and infrastructure-led capex is gathering momentum. In our view, this is a time to stay engaged and build portfolios with structural resilience.
BT: Is valuation an issue right now, when we have seen companies reporting below-par earnings? What is your outlook on Q1 earnings?
Goel: Broader markets are trading at reasonable valuations. FY26 will be a great year for bottom-up stock picking. We expect high single-digit earnings growth from the broader market in Q1. For FY26, we expect Nifty companies to deliver a 12% growth, while the growth in the small-cap space could be a lot higher.
BT: RBI has front-loaded the rate cut, which was followed by tax sops for the middle class. What sectors or segments are set to gain from these decisions?
Goel: Domestic cyclical stories in BFSI, auto, capital goods, real estate, and manufacturing will benefit from the significant monetary easing that is underway.
BT: Name two themes in India that you believe can be wealth creators over the next five years.
Goel: We are bullish on smallcaps. Over the last twenty years, the small-cap segment has delivered strong earnings growth and market returns. Primarily, smaller companies often exhibit higher long-term growth potential in both earnings and business expansion. Their relatively unestablished nature makes them more agile, allowing them to respond swiftly to industry shifts and market disruptions. This adaptability often translates into faster growth, which the stock market tends to reward. However, it’s important to note that this higher growth potential comes with correspondingly higher risk.
From a sectoral perspective, we remain constructive on the lending space. The significant monetary easing carried out this year should lead to healthy growth for small banks, small finance banks, and NBFCs. The healthcare segment is geared towards healthy medium-term compounding, with hospitals and the diagnostics space seeing a strong shift from unorganised to organised. Also, we see a secular growth opportunity in CRAMS (contract research and manufacturing) space.