India Small- & Mid-Cap Outlook — May 2026
Indian equities consolidated in May 2026 after April's sharp, ceasefire-driven rebound, with the BSE 500 broadly flat in US-dollar terms over the month. The strategy we sponsor nonetheless delivered positive returns and outperformed its benchmark, as domestically oriented holdings and bottom-up stock selection more than offset a still-uncertain external backdrop.
Market overview
Crude oil and Middle-East geopolitics remained the principal swing factors through the month — the Strait of Hormuz situation kept energy prices elevated and volatility two-sided — but the acute risk-off that had defined March continued to ease as supply fears stabilised. With both the NIFTY 50 and the BSE 500 still trading near decadal-low trailing valuations (ex-COVID), we continue to see an attractive entry point for medium-term investors, underpinned by normalising valuations and an increasingly earnings-led return outlook.
Structural tailwind: the India–EU FTA and China+1
The medium-term backdrop remains anchored by the landmark India–EU Free Trade Agreement (concluded 27 January 2026) and the parallel normalisation of US–India trade relations. Tariff liberalisation, broad services-market access and a clearer investment framework should progressively lift Indian indices and accelerate FDI and portfolio inflows — with renewables, IT services, financial services, pharmaceuticals and manufacturing positioned to capture the first wave of earnings upside.
A reinforcing tailwind is currency-driven competitiveness: the Chinese yuan has appreciated roughly 18% against the rupee over the past year, sharpening India's relative cost advantage and accelerating the "China+1" diversification of global supply chains — particularly in auto components, industrials and export-oriented manufacturing.
Domestic demand and earnings
Domestic consumption stayed resilient through the Q4 FY26 results season, with autos — passenger vehicles, two-wheelers and commercial vehicles — maintaining momentum and the portfolio's domestic holdings confirming robust earnings delivery. Corporate balance sheets remain healthy: portfolio net debt-to-equity sits at roughly 0.11 (ex-financials), and improving return ratios reinforce the earnings-growth thesis.
Two risks merit monitoring: the durability of post-GST demand into the seasonally softer months, and the impact of unseasonal weather on rural incomes.
Positioning and outlook
The portfolio remains concentrated (around 19 holdings) and tilted toward domestically oriented small-caps with strong balance sheets and visible earnings. It blends structural compounders — retail jewellery and the under-penetrated room-air-conditioner category — with selective cyclical-recovery plays in microfinance and metals, where a bottoming cycle and reasonable valuations offer alpha potential.
We remain most constructive on quality small-caps, where the correction was sharpest and valuations are now most reasonable, while expecting volatility to persist on global oil prices and geopolitical uncertainty.
How professional investors access the strategy
International professional and institutional investors access this India small- and mid-cap strategy through a tracker certificate offered via Banca Credinvest SA — see our investment strategies for the structure, or our India fund advisory for a manager-agnostic route into Indian private and public markets. For the underlying thesis, read why India.