Bandhan Small Cap Fund gets September inflows

For investors, the key question is not just performance but how managers are adjusting. Manish Gunwani’s fund added 12 stocks and exited eight in September, while weights rose in 73 existing holdings and declined in 175. The changes point to a portfolio that is still heavily tilted toward smaller companies, but with some active repositioning as the manager trims exposure to weaker names and adds new ideas in areas such as energy transition, financials and industrials.

The fund’s structure shows the trade-off being managed. Small-caps made up 68.36% of assets at the end of September, with cash and equivalents at 12.98%, only marginally below August’s 13.32%. That cash buffer gives the fund room to absorb volatility and take advantage of dislocations, but it also suggests managers remain cautious on deploying every rupee into a market where liquidity is thinner and price swings can be abrupt.

The biggest new positions included Elevate Campuses, Clean Max Enviro Energy Solutions, Viyash Scientific, Asset Reconstruction Company (India), JM Financial and Reliance Industries. On the exit list were Syrma SGS Technology, Steel Strips Wheels, Artemis Medicare Services, Torrent Pharmaceuticals and Jyoti CNC Automation. Among existing holdings, HDFC Bank and Power Finance Corporation saw the largest weight increases, while REC and LT Foods were trimmed.

That positioning is notable because it blends stable financials with cyclical and growth names, rather than making a full defensive shift. REC remained the second-largest holding despite its reduced weight, and the portfolio’s top 10 holdings accounted for 17.36%, down from 17.87%, indicating slightly lower concentration. The overall picture is of a manager preserving flexibility while keeping meaningful exposure to the segment most sensitive to domestic growth and liquidity conditions.

The broader backdrop explains why this matters. Small-cap funds have been under pressure from valuation concerns and liquidity constraints, yet many have continued to attract capital by focusing on stock selection rather than simply scaling assets. Bandhan Small Cap’s longer-term record still supports that approach: it returned 11.29% over the past year versus 5.22% for the BSE 250 Smallcap TRI, and its three- and five-year annualised returns also stayed ahead of benchmark.

For investors, the message is twofold. The fund is not signaling a wholesale retreat from small-caps, but neither is it chasing breadth indiscriminately. The combination of steady inflows, substantial cash, modestly lower concentration and a mix of new entries and exits suggests a market where alpha generation is becoming harder and managers are leaning more heavily on selective exposure.

The next catalyst is whether small-cap performance stabilizes enough to justify continued inflows, or whether further weakness forces more cautious positioning across the category. If liquidity stays tight, funds with disciplined cash management and active stock rotation may keep outperforming passive exposure; if sentiment improves, the same cash buffers could become a source of incremental upside.