10 fast-growing small caps mutual funds bought in Jun-Aug

Summary: Over the last 25 years, small caps have mostly outpaced both mid and large caps. In this story, we detail this outperformance, show a framework to pick them the right way and list 10 small caps whose fast growth and sound quality are catching institutional attention.

If the stock market were a family, large caps would be the wise old grandparents—steady, dependable and unlikely to surprise you. Mid caps would be the middle-aged uncles and aunts—experienced but still energetic enough to grow. And then small caps: the teenagers of the market. Ambitious, unpredictable and sometimes even a little reckless.

These are the companies that can light up your portfolio like fireworks but also blow up in your face if you’re not careful. Yet here’s the surprising part: for all their mood swings, small caps have been the kings of returns in Indian markets. Ignore them and you might be ignoring tomorrow’s biggest wealth creators.

How small caps outperform larger peers

Small caps have more room to grow than other peers and the potential to turn into mid caps and even large caps. When they do, they create substantial wealth. Here’s how we tested this:

We picked companies that either stayed in their market category or moved up a division (small to mid, small to large, mid to large) over the last 25 years. In every five-year period over this time, small caps gave an annual median return of 21.6 per cent. Compare that with 19.5 per cent for mid caps and just 13.5 per cent for large caps. That’s not just winning, it’s lapping the field.

Additionally, in every five-year period, small caps beat mid caps about 52 per cent of the time and large caps a whopping 72 per cent of the time. In effect, the teenagers outperformed the adults more often than not.

The flip side

Every superhero has a weakness. And small caps have a big one: they also stumble badly when things go wrong.

Look at these patches of pain:

• From 2015 to 2020, small caps delivered negative annual returns of 1.3 per cent. Yep, five years of running on a treadmill and going nowhere. By comparison, mid caps gave a decent 6.4 per cent and large caps a flat 1 per cent.
• From 2007 to 2012, annualised returns shrank to 8.5 per cent. Mid caps, on the other hand, returned 15.5 per cent and large caps 13.4 per cent.
• From 2008 to 2013, they fell further, to just 3.6 per cent. (Mid caps- 13.2 per cent, Large caps- 6.7 per cent)

In essence, small caps also wobble more than mid and large caps. We covered this in our earlier story which shows how they are the first to bleed in downturns and often by a wider margin.

This is the textbook case of high risk, high reward. When the party’s on, small caps hand you multibagger gains. But when the music stops, they can crash harder than anyone else. That’s why investors should treat them like chilli in food—great in moderation, but don’t fill your plate with it.

So, how to pick the right small caps?

• Watch where the smart money is going 

Mutual funds have the advantage of research teams, access to management and the discipline to size positions sensibly.

When funds start accumulating a small cap, it’s usually because the company has cleared some key hurdles: growth visibility, governance and balance sheet strength. It doesn’t mean you should rush to buy, but it’s a valuable starting signal.

At the same time, remember that funds aren’t always right. Some of their trades are a result of portfolio rebalancing rather than conviction. So treat mutual fund buying as a clue, not a command.

• Apply quantitative filters before seeking fund-favourites 

To sharpen the lens, use other meaningful financial metrics first. For this story, we applied the following two filters to the small-cap universe before checking mutual fund activity. The goal was to pick out companies that are growing strongly and using capital well. 

• Five-year annual profit after tax growth more than 20 per cent
• Five-year median ROE of more than 12 per cent

Only after applying these yardsticks, we checked which small caps saw increased fund stakes between June and August 2025. This gave us a shortlist of 10 high-quality, fast-growing small caps that also caught institutional attention recently. Find them in the table at the end.

Below is a concise overview of the top three stocks with the highest mutual fund buying.

3) Awfis Space Solutions

Awfis Space Solutions has emerged as India’s largest flexible workspace operator, built on a capital-light shared workspace model. From FY21 to FY25, revenue rose nearly eightfold from Rs 162 crore to Rs 1,208 crore, supported by both scale and diversification into allied services. 

Today, the company operates over 200 centres across 18 cities with 1.34 lakh seats, of which two-thirds are under the asset-sharing model, lowering capital intensity. Its integrated platform spans coworking, managed offices, design-and-build and mobility solutions—giving it an edge over lease-heavy peers. Occupancy has stabilised at 73 per cent overall and 84 per cent in mature centres, with a rising tilt towards larger enterprises and global capability centres, which form the stickier part of demand. 

Risks lie in cyclical office demand, intensifying competition and the challenge of converting new capacity into cash flows. However, valuations are rich with the stock trading at over 81 times earnings and around 11 times EV/EBITDA.

2) GNG Electronics

Electronics Bazaar (GNG Electronics) has emerged as one of the few scaled players in India’s refurbished information and communication technology market, an industry still largely unorganised. The company operates five facilities across Navi Mumbai, Sharjah and Dallas, with sales reaching over 35 countries and differentiates itself by offering one-to-three-year replacement warranties, rare in refurbishing. 

Its Microsoft Authorised Refurbisher and R2v3 certifications, together with audits by OEMs like HP and Lenovo, strengthen its sourcing channels and pricing power. The business is fully integrated, spanning procurement, refurbishment and multi-channel distribution, while serving a 3,000-plus customer network backed by strong online feedback. 

However, the model is not without risks: working-capital intensity is high, technology cycles are short and past growth relied heavily on debt. Post-IPO deleveraging has reduced leverage, improving flexibility. The stock trades at around 62 times trailing earnings, a valuation that assumes it can sustain cash flow discipline and execute consistently in a fast-evolving market.

1) Ellenbarrie Industrial Gases

EIGL is among the few Indian-owned players in industrial gases, a field usually dominated by global majors. With nine operating sites, it holds regional leadership in Eastern and Southern clusters, serving over 1,800 customers. Its long-term onsite supply contracts keep earnings less volatile.

A differentiator is its focus on argon, a gas with much higher realisations than oxygen and nitrogen, where margins can be nearly double the other two’s combined average. Alongside, EIGL operates one of India’s largest logistics fleets for the transport of cylinders, giving it reach across steel, pharma, healthcare, defence and space sectors.

The company recently expanded its capacity by 770 tons per day and has reduced debt post-IPO, improving flexibility for future investments. However, the business remains capital-intensive and faces cyclical risks from steel and intensifying competition in its key markets. The company presently commands a premium valuation of around 95 times its trailing 12-month earnings. Long-term growth depends on execution in onsite projects and scaling its argon mix.

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Also read: Mutual funds are buying these 10 mid caps. Should you?

This article was originally published on September 23, 2025.