Mid & Small Cap Stocks: Anuj Jain Predicts Strong Returns in 2025 Despite Market Correction
Anuj Jain Predicts : The Indian stock market has witnessed a significant correction in mid and small-cap stocks over the past few months. While this decline has caught many investors off guard, market expert Anuj Jain, Co-Founder and Chief Investment Officer of Green Portfolio PMS, remains optimistic about the sector’s recovery in 2025. Despite the ongoing volatility, he firmly believes that this correction is short-lived and expects strong returns for mid and small-cap stocks in the coming months.
The Market Correction: A Necessary Cooling Off
Over the past two months, mid and small-cap stocks have undergone a sharp decline that surprised many in the fund management industry. According to Anuj Jain, while a correction was anticipated to stabilize overheated valuations, the pace and extent of the decline were unexpected.
“A correction was needed to cool off the market, but no one in the fund management industry that I have met expected anything like this,” he said in a recent interview with Moneycontrol.
Despite this setback, Jain remains confident that the downturn is temporary. He believes that the underlying growth potential of India’s economy, strong corporate earnings, and government-led capital expenditure will help these segments bounce back swiftly.
Factors Influencing the Market Outlook
1. The Global Trade Scenario & Tariff Wars
Jain also commented on the global economic landscape, particularly regarding the ongoing trade tensions between the US and China. He believes that while tariff disputes are currently in the spotlight, markets will eventually adapt.
“The US economy is a $30 trillion economy with the world’s reserve currency. While short-term hiccups are inevitable, supply chains will realign, and new capacity will emerge. India could benefit significantly from this shift, as global companies look for alternatives to China,” Jain noted.
2. Impact of FII Outflows & US Market Strength
Foreign Institutional Investors (FIIs) have been withdrawing funds from Indian equities, leading to further pressure on the market. The strengthening US dollar and higher bond yields in the US have made American markets more attractive in the short term.
However, Jain believes that India’s long-term growth story remains intact, and FIIs will eventually return as they cannot ignore the potential of the Indian market.
“The US stock market, led by tech giants, is performing well, but India offers a unique growth trajectory. The party in the US market won’t last forever, and FIIs will have to come back to India,” he added.
Investment Strategy for 2025
For investors looking to allocate their funds wisely, Jain suggests focusing on quality stocks with strong earnings visibility, robust management, and a proven track record.
Sectoral Preferences:
- Government Capex-Driven Sectors – Infrastructure, capital goods, and construction-related companies remain attractive due to strong government spending.
- China+1 Strategy Beneficiaries – Sectors such as manufacturing, specialty chemicals, and electronics could benefit as global supply chains diversify away from China.
- Technology & Financial Services – Strong long-term potential as digital transformation continues and credit growth remains robust.
Portfolio Allocation Suggestion for Rs. 10 Lakh Investment:
| Sector | Allocation (%) |
|---|---|
| Large-Cap Stocks | 30% |
| Mid-Cap Stocks | 30% |
| Small-Cap Stocks | 20% |
| Debt Instruments & Gold | 10% |
| Cash for Opportunities | 10% |
Are Earnings Risks Already Priced In?
Jain believes that while the market has undergone a significant correction, companies with weak earnings could still face further downside. However, investors focusing on fundamentally strong companies can capitalize on the recovery when market sentiment improves.
He also provided insights into the valuation trends for mid and small-cap indices:
| Index | Current P/E Ratio | Peak P/E Ratio | Long-Term Average P/E |
|---|---|---|---|
| Nifty Mid Cap 100 | 32-33x | 40-45x | 24-25x |
| Nifty Small Cap 250 | 26-27x | 35-36x | ~26x |
While there could be some more correction in mid-cap stocks, small caps appear to be closer to their long-term average valuations, reducing the potential downside risk.
Final Verdict: A Bullish Outlook for 2025
Despite the recent corrections, Anuj Jain remains bullish on the mid and small-cap space.
“Our conviction is that this correction is short-lived. We expect to see good returns in this calendar year,” he reaffirmed.
For long-term investors, this phase could present an excellent opportunity to accumulate quality stocks at reasonable valuations before the market resumes its upward trajectory.
Key Takeaways:
✅ The recent correction was unexpected but necessary for market stability.
✅ India remains a strong investment destination, despite short-term volatility.
✅ Mid and small caps will deliver strong returns in 2025 as economic fundamentals remain intact.
✅ Investors should focus on quality stocks with strong earnings and management.
As always, a disciplined investment approach and a long-term perspective will be key to navigating the market successfully in 2025.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.