The strong inflow into small-cap funds came even as overall core equity mutual fund flows moderated. Net inflows into core equity schemes declined 14.8% month-on-month to ₹24,700 crore in July, from around ₹28,970 crore in June. This suggests that investors were not necessarily moving away from equities altogether but were changing where they allocated fresh money.
Mid-cap funds also continued to attract investors, recording ₹6,192 crore in inflows in July, compared with ₹6,090 crore in June, a marginal 1.7% increase.
Large-cap funds
Large-cap funds witnessed a significant change in investor flows. The category moved from a ₹2,067.5 crore inflow in June to a ₹1,322 crore outflow in July, representing a month-on-month swing of nearly ₹3,390 crore. It was the category’s first monthly outflow since December 2023.
Large & mid-cap funds also saw inflows decline 20.7% to ₹3,425 crore from ₹4,321 crore, while flexi-cap funds recorded ₹4,709 crore of inflows, down 10% from ₹5,231 crore in June. Focused fund inflows fell 42.6% to ₹642 crore.
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Small-Cap vs Large-Cap Fund Flows
| Fund Category | June 2026 | July 2026 | MoM Change |
|---|---|---|---|
| Small-cap funds | ₹5,602 Cr inflow | ₹7,767.5 Cr inflow | ↑ 38.7% |
| Large-cap funds | ₹2,067.5 Cr inflow | ₹1,322 Cr outflow | Sharp reversal |
| Mid-cap funds | ₹6,090.2 Cr inflow | ₹6,192 Cr inflow | ↑ 1.7% |
| Large & Mid-cap funds | ₹4,321 Cr inflow | ₹3,425 Cr inflow | ↓ 20.7% |
| Flexi-cap funds | ₹5,231 Cr inflow | ₹4,709 Cr inflow | ↓ 10.0% |
| Focused funds | ₹1,118 Cr inflow | ₹642 Cr inflow | ↓ 42.6% |
What were small-cap funds buying and selling?
Data from the top 23 small-cap fund houses provide a closer look at how fund managers changed their portfolios between June and July 2026. The analysis showed ₹18,166 crore of net purchases, compared with ₹11,257 crore of net sales. Fund managers increased exposure to 322 stocks, while exposure was reduced in 180 stocks. There were also 88 fresh buys and 73 complete exits.
Among the stocks where exposure increased, Pine Labs topped the list at ₹422 crore, followed by Union Bank of India at ₹410 crore, Adani Enterprises at ₹392 crore, Manappuram Finance at ₹332 crore and Sona BLW Precision Forgings at ₹273 crore.
The analysis also identified several fresh additions to small-cap fund portfolios. The largest fresh buys included Jubilant FoodWorks at ₹428 crore, Indo-MIM at ₹385 crore and Jio Financial Services at ₹371 crore. Other notable fresh purchases included Hexaware Technologies, Kotak Mahindra Bank and Belrise Industries.
July 2026: Small-cap vs Mid-cap vs Large-cap Funds
| Category | Average July Return | Best Performer | Best Return | Worst Performer | Worst Return |
|---|---|---|---|---|---|
| Small-cap funds | 0.81% | Samco Small Cap Fund | 3.49% | HSBC Small Cap Fund | -1.06% |
| Mid-cap funds | 1.34% | Taurus Mid Cap Fund | 7.28% | HSBC Midcap Fund | -1.23% |
| Large-cap funds | 1.90% | Taurus Large Cap Fund | 6.15% | Samco Large Cap Fund | -0.33% |
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On the selling side, fund managers reduced exposure most sharply in Ather Energy at ₹752 crore, RBL Bank at ₹556 crore, MTAR Technologies at ₹266 crore, Apar Industries at ₹221 crore and Multi Commodity Exchange of India at ₹214 crore.
There were also complete exits from 73 stocks, involving ₹5,269 crore. Among the prominent names were Bharti Airtel at ₹444 crore, Anthem Biosciences at ₹255 crore and Dr Reddy’s Laboratories at ₹198 crore.
What top 23 Small-Cap Fund houses bought and sold
| Stock | Action | Value |
|---|---|---|
| Pine Labs | Increased exposure | ₹422 Cr |
| Union Bank of India | Increased exposure | ₹410 Cr |
| Adani Enterprises | Increased exposure | ₹392 Cr |
| Manappuram Finance | Increased exposure | ₹332 Cr |
| Sona BLW Precision Forgings | Increased exposure | ₹273 Cr |
| Ather Energy | Decreased exposure | ₹752 Cr |
| RBL Bank | Decreased exposure | ₹556 Cr |
| MTAR Technologies | Decreased exposure | ₹266 Cr |
| Apar Industries | Decreased exposure | ₹221 Cr |
| MCX | Decreased exposure | ₹214 Cr |
Finance sees the highest inflows
Sector-wise, small-cap fund managers deployed the most capital into Finance at ₹1,493 crore, followed by Industrial Manufacturing at ₹823 crore and Leisure Services at ₹765 crore. Banks attracted ₹726 crore, while Auto Components received ₹537 crore.
On the other hand, Electrical Equipment recorded the highest net sector outflow at ₹871 crore, followed by Automobiles at ₹679 crore and Telecom Services at ₹438 crore. This indicates that the preference for small-cap funds was accompanied by considerable stock- and sector-level rotation rather than uniform buying across the segment.
For investors, July’s numbers highlight stronger appetite for small-cap exposure, but the flows alone do not mean small-cap funds are automatically better than large-cap funds. Small-cap investing can involve higher volatility, making investment horizon, risk tolerance and portfolio allocation important considerations.
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Disclaimer: Business Today provides market and personal news for informational purposes only and should not be construed as investment advice. All mutual fund investments are subject to market risks. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.