• Small-cap earnings outlook: Small-cap companies delivered 9.5% earnings growth in Q4 and roughly 10% for the full year, with analyst consensus projecting FY27 earnings growth to reach 18% to 20%.
• Small-cap portfolio allocation: A 20% to 22% portfolio allocation to small caps is recommended, driven by valuations sitting at a 10% discount to long-term averages and steady monthly inflows of ₹6,000 to ₹7,000 crore across small-cap and multicap routes.
• Key fund recommendations: Invesco Small Cap is highlighted for its aggressive, fully deployed high-growth strategy, while HDFC Small Cap is recommended for a balanced growth-at-a-reasonable-price approach supported by a 10% cash buffer.
• SIP historical performance: Historical data since 2001 shows that while initial small-cap SIPs experienced up to a 40% drawdown in 17% to 20% of first-year cases, staying invested over five years delivered a 16% to 17% CAGR.