Bandhan Small Cap Fund Adds to Cyient and HDFC Bank

Bandhan Small Cap Fund took in an estimated ₹2,187 crore in August, the most among individual small-cap schemes, taking its assets under management to ₹34,176 crore from ₹31,103 crore in July. Over the month, the fund increased holdings in 87 companies and cut positions in 39, a broad repositioning that suggests the manager is still finding opportunities despite rich valuations in parts of the small-cap universe.

The most notable adds were Lalithaa Jewellery Mart, ESDS Software Solution, Lumino Industries and Happiest Minds Technologies. Lalithaa Jewellery Mart was the largest new position, though still just 0.49% of the portfolio, a reminder that even amid heavy inflows the fund is spreading risk rather than making oversized bets on any one name. Happiest Minds was disclosed at effectively zero weight, suggesting a token or early-stage position.

Among existing holdings, the fund leaned harder into Cyient, P N Gadgil Jewellers, Strides Pharma Science and HDFC Bank. Cyient’s share count rose 13.1% to 48.42 lakh, while its portfolio weight climbed to 1.66% from 1.17%. P N Gadgil Jewellers saw the sharpest increase, with holdings up nearly 180% to 28 lakh shares. Strides Pharma was boosted 42.3%, and HDFC Bank also saw a meaningful increase.

At the same time, Bandhan pulled back from names including Torrent Pharmaceuticals, Laser Power and Infra, Craftsman Automation, Voltamp Transformers, Apar Industries, Samvardhana Motherson International and One 97 Communications. The fund fully exited six stocks, including Baazar Style Retail, Motilal Oswal Financial Services, Lumax Auto Technologies, TBO Tek, Poly Medicure and City Union Bank.

For investors, the message is less about any one stock and more about the style of market that remains in favor. Small caps are attracting capital because they offer the possibility of faster earnings growth over a multi-year horizon, especially in sectors tied to consumption, manufacturing, financial services and technology. But they also demand discipline. The best small-cap funds usually win not by chasing every hot name, but by rotating into businesses with sustainable cash flows, improving margins and room to scale.

Bandhan’s own track record helps explain the inflow. The fund has delivered an annualised three-year return of 23.90%, well ahead of the BSE 250 SmallCap TRI’s 12.33%, and Value Research ranks it first among 34 small-cap funds on that measure. That kind of outperformance tends to reinforce a virtuous cycle: strong returns attract flows, flows give the manager more flexibility, and the fund’s reputation grows further.

Still, long-term investors should keep one eye on valuation and one eye on diversification. Small caps can be excellent wealth creators, but they are not the place to concentrate a portfolio. A patient, diversified approach — and the willingness to hold through drawdowns — matters far more than chasing the latest monthly winner.

For investors who already own small-cap exposure, Bandhan’s August moves are worth watching as a window into where active managers still see opportunity. For everyone else, the inflow trend is a reminder that compounding often starts with buying strong businesses before the crowd fully catches on.