After years of strong gains, midcap mutual funds lost momentum in 2025—leaving many investors wondering what lies ahead. In a recent Business Standard article, Ankit Patel, Co-founder and Partner at Arunaset Investment Services, shared a grounded and cautious view on what could shape the next phase for midcaps.

Ankit noted that while rich valuations in earlier years were supported by strong earnings growth, EPS growth slowed sharply in 2025, falling to high single digits from the high-teens and low-20s seen over the previous three years. Fiscal consolidation, weaker government spending, and soft nominal GDP growth further weighed on demand, prompting investors to gravitate toward largecap stocks with more stable earnings and balance sheets.

Looking ahead to 2026, Ankit believes the pace of demand recovery will be crucial. If consumption and investment fail to pick up, earnings growth could remain under pressure—especially for midcaps, which are more vulnerable due to higher operating leverage. He also flagged key external risks, including a potential US slowdown, trade tensions, tighter global financial conditions, rising input costs, delayed capital expenditure, and execution challenges.

With valuations now closer to long-term averages, Ankit’s message is clear: the next phase for midcaps will depend far more on earnings resilience and demand revival than on valuation rerating alone.

Read the full article:
Midcap funds outlook for 2026 hinges on earnings rebound, rate support