Mid & Small Caps Rally: Why Strong Earnings Could Keep The Rally Going In 2026

Mid-cap and small-cap stocks remain a strong investment theme as corporate earnings show signs of improvement. Aniruddha Sarkar, Co-founder & CIO, Equinova Investment Managers, says investors should focus on earnings rather than market capitalisation. Around 50% of his portfolio is allocated to small caps, reflecting his preference for sectors where growth is strongest. Auto and auto ancillary, power and power ancillary, textiles, private defence and aerospace account for a significant part of the portfolio. He believes the last two quarters have shown a clear improvement in earnings, suggesting the market may be moving beyond the prolonged earnings weakness. For investors, the focus should remain on earnings rather than market noise.