Minimum Investment Rs. 500: BAJAJ FINSERV SMALL CAP FUND

BAJAJ FINSERV SMALL CAP FUND

(An open ended equity scheme predominantly investing in small cap stocks)

 

“SOWING QUALITY, NURTURING VALUE, HARVESTING GROWTH”

 

NFO PERIOD: June 27, 2025 to July 11, 2025

      Minimum Application Amount Rs. 500

 

 

Small Cap Investing in India Trends

 

• The small cap segment offers one of the largest investable universes, with 898 small cap stocks having a market capitalization between ₹ 2,000 Cr to ₹ 32,799 Cr.

 

• Today’s Small Cap are not Small: The largest small cap stock had a market cap of ₹8,354 crore four years ago (as of December 2020), which has grown nearly 4x to ₹32,799 crore; compared to just a 1.4x increase in the largest large-cap stock over the same period. In fact, today’s 501st ranked stock has a higher market cap than the 251st ranked stock did four years ago.

 

• Number of small cap stocks (defined as those outside the top 250 companies by market cap) with a market cap above Rs 2,000 crore has surged from 253 to 898. This structural deepening of the market has enhanced the investable universe for bottom-up stock pickers focused on small caps.

 

• Many of the promising businesses in the small cap segment have been listed only in recent years. With several more expected to go public in the near future, the investable universe is set to expand further, bringing in a fresh pipeline of interesting opportunities.

 

• Investing in the small cap segment offers an opportunity to participate in India’s growth story, with many market-leading businesses available exclusively in this space. However, investment decisions should be guided by a careful assessment of current valuations.

 

Alpha-Generating opportunities for Active Managers

 

• Most Heterogeneous Segment: The breadth and variety within small caps allow skilled managers to identify niche leaders, emerging disruptors, and scalable growth stories that are often under-researched or mispriced by the broader market.

 

• Number of Analyst Coverage: The average number of analysts covering small cap stocks is significantly lower than that for large caps. This often results in delayed price discovery, creating opportunities for investment managers with strong in-house research teams to identify mismatches between stock prices and fundamentals.

 

• Institutional Ownership: Very large institutional investors often overlook small businesses due to size constraints. This creates opportunities for investment managers with relatively smaller capital but strong research capabilities to capitalize on compelling opportunities in the small cap segment

 

• Multi-Baggers from Small Cap Segment: Small cap segment has delivered numerous multi-bagger opportunities for active fund managers

 

• Number of Small Cap Stocks became Large,Mid and Micro: Small cap segment has delivered numerous multibagger opportunities for active fund managers, it is also prone to weak businesses; often becoming alpha detractors. This makes the segment inherently more complex and calls for greater scrutiny compared to large caps.

 

Small Cap Alpha Generating Opportunities “By Omission”

 

• A small cap fund manager can build Active Share by omitting certain benchmark stocks, and this is especially critical in the small cap space because of:

1) Corporate Governance Risk

2) Financial Vulnerability-Balance Sheet Risk

3) Expensive Valuations

4) Fad-Driven Stocks

5) Poor Capital Allocation

• Need for an in-house Forensic Analyst: An in-house forensics analyst is like carrying a skilled botanist on the journey: someone who knows how to distinguish between what’s valuable and what’s dangerous.

 

Historical Performance of Small Cap Segment

 

• Trailing Point to Point % CAGR for Key Indices

 

 

 

• Historically, the small cap segment has outperformed the large-cap segment over medium- to long-term horizons.

 

• Rolling Return Analysis for Key Indices.

 

 

 

• Rolling return analysis reinforces the long-term case for small cap investing.

 

• Over 10-year periods, the Nifty Small cap 250 TRI has delivered a higher average CAGR (13.4%) compared to the Nifty 100 TRI (12.5%), despite its reputation for volatility.

 

• 41% of 10-year rolling periods in small caps delivered returns above 15% CAGR, versus just 15% for large caps.

 

• 10 Years SIP Rolling Return (% XIRR) on Monthly Basis (From Apr’05 to Apr’25)

 

• The small cap segment presents a compelling opportunity for genuine long-term SIP investors, offering higher return potential over the long term.
•  
• 53% of SIP observations in small caps delivered over 15% XIRR, compared to just 14% in large caps; albeit with higher interim volatility.

 

• In our view, the small cap segment offers relatively higher alpha generation opportunities for active fund managers, making it an even more attractive avenue for investors seeking reasonable long-term returns for their SIPs.

Introducing Bajaj Finserv Small Cap Fund

 

• Asset Allocation under Normal Circumstances: Minimum 65% of the Portfolio in small cap Stocks + Opportunistic Position in Mid & Large Caps.

 

• Approach is to avoid investing in poor-quality businesses, regardless of valuation.

 

• Within the universe of quality businesses, we prefer stocks with relatively better margin of safety.

 

• Portfolio of around 40-100 Stocks.

 

Current Environment for Small Cap Investing

 

• There have been few structural changes in recent years which provide interesting opportunities in the small cap segment.

1) Fast Track GST Adoption

2) Corporate Tax Cut

3) Formalization of Economy

4) Interest Rate environment

 

• Quality Small Cap During Recent Market Correction

 

1) Many stocks that have declined in the recent market correction may not recover quickly, as the drop is often justified by factors such as overvaluation or weak business fundamentals.

2) The correction has also led to a meaningful decline in several high-quality stocks with strong fundamentals.

3) This has brought many fundamentally sound small cap businesses to more reasonable valuation levels, presenting a compelling opportunity for active fund managers to construct a fresh, high-conviction portfolio-free from legacy biases or past positions.

 

For more details and investment..!

Mr. K P Venkatarama Krishnan,

Founder, Viruksham Finmart Private Ltd

Chennai

E - Mail: kpvenkat02@gmail.com

Cell Number: 98410 34997

Read articles written by Mr. K P Venkatarama Krishnan in Nanayam Vikatan, a leading personal finance magazine.

https://bit.ly/3TVQAHJ

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully. The past performance of the mutual funds is not necessarily indicative of future performance of the schemes.