January 12, 2026
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In an in-depth interaction, Mr. Anupam Tiwari, Head of Equity, Groww Mutual Fund outlines the philosophy driving the Groww Small Cap Fund NFO and explains how the fund aims to balance high-growth opportunities with disciplined risk control. The discussion covers managing sharp drawdowns inherent to small-cap cycles, maintaining valuation discipline despite elevated benchmark multiples, handling liquidity challenges, and setting realistic investor expectations.
– By Jainee Shah, Director, Chanakya Mediahouse Pvt. Ltd. SEBI Registered Research Analyst, Chartered Accountant
- Small-cap cycles are known for sharp drawdowns despite strong long-term returns. How does the Groww Small Cap Fund plan to balance aggressive growth hunting with downside risk control, especially during market-wide corrections?
Small-cap investing inherently comes with higher volatility and this cannot be fully avoided. At Groww Small Cap Fund, we aim to ensure that drawdowns, if any, are driven by market cycles rather than permanent impairment of capital. Risk control is driven primarily through our investment framework. The fund is managed entirely bottom-up using the QGaRP framework, where quality acts as the first line of defence. We focus on companies with sustainable business models, strong balance sheets, and visibility of cash flows, which tend to be more resilient during market-wide corrections and recover faster when cycles turn.Growth is pursued selectively and only where it is supported by fundamentals. Valuation discipline helps avoid paying for overly optimistic outcomes, which is often what amplifies drawdowns in small-cap cycles. While we allow flexibility on valuation given long growth runways, we avoid businesses where returns are significantly dependent on favourable market sentiment.
Finally, we emphasise to investors that small-cap volatility is best managed through time, not tactics. A longer holding period allows earnings compounding to play out and helps investors ride through inevitable drawdowns, which is critical for capturing the long-term potential of small caps.
- With the benchmark Nifty Smallcap 250 already trading at relatively higher P/E multiples, what valuation discipline will the fund follow while entering new positions during the NFO phase?
Valuation discipline is an integral part of our QGaRP framework and is embedded at the stock selection stage rather than applied at a market or index level. Every investment idea has to clear a valuation filter before it enters our portfolio. That said, we recognise that small-cap businesses often have longer growth runways, and therefore the framework allows some flexibility on near-term valuation metrics. Additionally, it’s also important to view current small cap valuations in context. After a year of underperformance, several pockets of the small-cap universe have seen meaningful moderation in valuations, while fundamentals have continued to improve. Consequently, current valuations in many pockets are more reasonable than they were a year earlier, creating opportunities to enter businesses where growth visibility and valuation comfort coexist. - Liquidity is a key challenge in the small-cap universe. How does your investment process address liquidity risk, particularly when managing inflows during bull phases and potential redemptions during stressed markets?
Liquidity management is a core part of our portfolio construction process. It is embedded into stock selection, position sizing, and ongoing portfolio monitoring. At the stock level, we explicitly factor in free float and volumes. At the portfolio level, we use prudent position sizing and diversification to ensure that the fund can manage both inflows during strong markets and potential redemptions during periods of stress without forcing value-destructive exits.The portfolio is reviewed continuously to ensure that liquidity remains aligned with the fund’s size and evolving market conditions.
- What specific edge or philosophy will you bring to Groww Small Cap Fund that differentiates it from existing small-cap funds in the market?
Groww Small Cap Fund offers a proposition built around clarity of mandate, discipline, and alignment. The fund is designed as a pure small cap strategy, without large-cap exposure or thematic tilts, ensuring transparency for both distributors and investors. The focus on bottom-up stock selection, valuation discipline, and risk management is consistent with Groww MF’s broader investment approach.For investors, this translates into a small cap product that complements existing portfolios, aligns with long-term investor goals, and is backed by a fund house that has demonstrated strong research and execution capabilities over since inception.
- For investors entering this NFO, what realistic expectations should they set in terms of volatility, holding period, and behaviour during inevitable market drawdowns?
Small-cap investing demands both a longer time horizon and ability to tolerate short term volatility. Investors should approach this segment with a long time horizon — ideally 8–10 years — because time is the single most effective way to manage volatility in small caps. Short-term drawdowns are inevitable, but over longer periods, earnings growth and compounding tend to smooth out that volatility. Drawdowns of 20–30% are a normal part of small-cap cycles, which is why allocation sizing matters. Investors should invest only that portion of their portfolio whose volatility they can tolerate, allowing them to stay invested through downturns and let long-term compounding do the heavy lifting.