Veteran fund manager Prashant Jain is increasing exposure to small- and mid-cap stocks after maintaining a cautious stance for two years. Improved economic data and cooling valuations have prompted this strategy change at 3P Investment Managers. The firm now identifies better risk-reward opportunities in segments that previously faced intense valuation pressure.
Prashant Jain, a veteran in the Indian mutual fund industry, has moved away from a defensive strategy to a more optimistic outlook on small- and mid-cap companies. After two years of reducing risk by prioritizing large-cap stocks, his firm, 3P Investment Managers, confirmed in a June investor note that it plans to gradually increase active bets in these smaller market segments.
Valuation and Economic Context
The decision to pivot follows a period of market consolidation that has made valuations more attractive for investors. According to the firm, the Nifty 50 forward price-to-earnings ratio has dropped to 18.4 times. This figure is roughly 15% below the recent peak and sits closer to the 10-year historical average, signaling that the premium valuation concerns seen in early 2024 have subsided.
Beyond valuation, the firm cited an improving macroeconomic environment. Earnings momentum remains steady, and the shift in equity ownership is viewed as a positive sign. Over the 21 months ending in June 2026, foreign investors pulled approximately $61 billion out of Indian equities, leading to foreign ownership levels hitting a 15-year low. This outflow has been absorbed by domestic investors, which the fund believes creates a more stable, long-term ownership base.
Strategy and Portfolio Focus
Jain’s previous defensive stance, which involved favoring large-cap stocks and reducing active positions, helped the fund navigate a period where market returns were largely stagnant or negative. By avoiding highly priced smaller stocks during that phase, the fund preserved capital. Now, with market conditions shifting, 3P Investment Managers intends to adjust its asset allocation.
Currently, the portfolio is weighted with 78.2% in large-cap stocks and 17.7% in small-cap companies. Investors can expect a gradual increase in the small- and mid-cap portion of the portfolio as the firm identifies specific opportunities that meet its return criteria. The primary driver for this shift is the belief that the risk-reward balance for Indian equities has improved significantly, as the valuation gap between India and other emerging markets has also normalized.
Monitorable Trends for Investors
The performance of this strategy will depend on the fund’s ability to pick individual stocks that can capitalize on economic growth without being exposed to excessive company-specific risks. As the firm increases its small-cap allocation, the key monitorable will be the company’s commentary in future quarterly reports regarding the pace of new investments and the specific sectors they favor. Investors should also track how domestic inflow resilience holds up if global market volatility continues, as this has been a major support pillar for the Indian equity market structure recently.