Bajaj Finserv Small Cap Fund Completes One Year
FinTech BizNews Service
Mumbai, 22 July 2026: Bajaj Finserv Mutual Fund marked the one-year anniversary of the Bajaj Finserv Small Cap Fund, an open ended equity scheme that predominantly invests in small cap stocks, through a unique 3-in-1 strategy of investing focused on growth, value and quality stocks. Since its launch on July 18, 2025, the fund has delivered a return of 8.5% while its benchmark – the BSE 250 SmallCap TRI returned -1.25% during the same period, resulting in an alpha of 9.75 percentage points.
The fund has stayed true to its label through a volatile year for the small cap segment, maintaining an average small cap allocation of 85% since inception with zero exposure to large caps. As of June 30, 2026, small caps constitute 87.34% of the portfolio, with the balance in mid-caps and cash equivalents.
A Milestone Year Marked by Discipline Amidst Volatility
The recent momentum in small caps over the past three months highlights the opportunities that can emerge across market cycles. From the market bottom on March 23, 2026, to June 30, 2026, Bajaj Finserv Small Cap Fund-Direct Growth returned 29.34% against the benchmark's 24.84%. Over the trailing six months, it delivered 24.98% versus 11.41% for the benchmark. As of June 30, 2026, the portfolio also reflected higher earnings growth estimate, with a two-year EPS CAGR of 28.9% compared with 13.8% for the benchmark, alongside a lower PEG ratio as compared to the benchmark.
The portfolio remains well diversified across 93 stocks, with the top 10 holdings accounting for just 28.62% of assets and no single stock exceeding 4.18% weight — reflecting a deliberate approach to managing concentration risk. Notably, 42 of the fund's 93 holdings are outside the BSE 500, accounting for ~40% of the portfolio's net asset value. This demonstrates the fund’s ability to identify opportunities beyond the broader market, including emerging leaders in niche segments. These investments are supported by in-depth research from a dedicated forensic analyst, who evaluates financial quality, governance standards, long-term growth prospects, and potential risks before investment decisions are made.
Why the Fund House Sees Continued Potential in Small Caps
Bajaj Finserv Mutual Fund believes the case for small cap investing is strengthening on several fronts:
- Improved balance sheets: Net debt-to-equity for the broader small cap universe has declined from 0.52x to near-zero over FY19–FY26, while return on equity has improved from 9% to 12%, even as capital expenditure has nearly doubled.
- An earnings inflection: After two years of earnings stagnation, small cap index EPS is projected to grow at a 20%+ CAGR over FY26–28, a trend that has historically preceded periods of robust price performance.
- Valuation reset: Around 45% of small cap stocks currently trade at a discount to their 10-year average valuation, one of the highest such readings on record, highlighting opportunities for selective bottom-up, investing.
- Rising domestic institutional ownership: As per calendar year data, DII holdings in small caps have climbed steadily, increasingly driven by SIP flows which tend to be more stable through market cycles.
Speaking on the milestone, Ganesh Mohan, Managing Director, Bajaj Asset Management said, “We are proud that the fund has stayed true to its label through a genuinely difficult market cycle. We saw a sharp correction and a strong rebound within the same twelve months, and our discipline around quality, growth and value helped the portfolio navigate both phases better than the benchmark. We believe the current environment offers a compelling opportunity for long-term investors to consider small caps. Healthier balance sheets, improving earnings prospects, and valuations that are closer to historical averages support the investment case. Given the volatility associated with the segment, investing through SIPs and STPs can help navigate market fluctuations."
Nimesh Chandan, Chief Investment Officer, Bajaj Asset Management Limited added, “Our approach has always been to combine quality, growth and value rather than rely only on a single factor in small caps. We cover a wide range of companies in the small cap universe. Nearly half our portfolio sits outside the BSE 500, supported by behavioural screeners, fundamental analysis and forensic oversight. For last two years, the small cap index has been under pressure. With over 45% of small cap stocks now trading below their long-term average valuations, we see this as a constructive entry point for investors with a suitable risk appetite and a long-term horizon."
