Rs 10 lakh to invest in 2026? Nilesh Shah’s practical take on smallcap vs midcap, gold and silver

After a sharp smallcap correction, rising valuation scrutiny and silver’s sizzling rally, asset allocation is back in focus. Kotak Mahindra AMC Managing Director Nilesh Shah outlines a pragmatic investment framework for 2026, balancing equities, gold, silver and debt amid shifting cycles. With sanity returning in over-hyper parts of the market, his approach prioritises earnings visibility, valuation comfort and risk management over speculative return chasing.Edited excerpts from a chat with Nilesh Shah:

This year we have seen a number of small and midcap stocks falling 40-50% and even when the market has recovered to all-time highs, many of these stocks are lagging behind. What is the likelihood that they will recover in 2026?
In the smallcap space, many times people end up having much higher expectations because they have delivered stupendous growth in a short period of time. For two years, you grow at 50% and you assume that for next 10 years, you will keep growing at 50%. But size comes into play.Now, it is extremely important for you to realise that a smallcap company cannot continue to grow at a fast pace indefinitely. There will be moderation and which is why this distortion comes. Secondly, many times in smallcap companies, there is not enough history. And people invest in hope. Once that hope fades away, prices correct. Now, if you are invested in a real business, then you have to hold on to it. If you have invested in a hope trade, then it is better to cut off losses.

My feeling is that this correction is separating men from boys. Companies which have real business, which are taking tough decisions to grow, and which are working to ensure that the lowered expectation at these prices can be met, they will continue to do well.

Last year in the peak of the bull market, you had said that your cousins are giving you stock tips. Now I want to know what is happening with them and are you still getting stock tips or you are giving them tips as the cycle has reversed?

So, I cannot give them any tip other than to invest in my mutual fund. But I think there is a lot of sincerity now. This sharp correction in smallcaps, microcaps, etc has brought sanity back. Now, my cousins are saying that bhai, invest karna hai, abhi trading nahi karna hai (we will invest brother, will not trade).

For a moderately conservative investor looking to invest Rs 10 lakh in 2026, what would be your suggestion on asset allocation between gold, silver, equities, and debt?
Our outlook on equity is positive. We think midcap, largecap and smallcap will be in that order of performance. The outlook on gold and silver is positive, but more in favour of gold than silver.

Our outlook is positive but subject to central bank buying. The day the central bank sells, you also get out.

My multiasset allocation fund today is the perfect example of what our outlook is. About 55% is equity, about 20% is precious metal, and 30% is fixed income. Now these numbers could go 1% or 2% here or there, but this is broadly the average. I think this is a fair allocation for an average risk taker.

But 20% in precious metals is still higher than 10% which we used to talk about 2-3 years ago.
Undoubtedly, but this 20% is our call. We will be monitoring these prices and central bank action 24×7. For an average investor, it is like a car where the professional driver can drive at 120. But if you come to my training institute saying at what speed I drive, I will say 60. Do not go to 120.

Going back to allocation, why is midcap at No.1, followed by largecaps and then smallcaps?
Midcaps because of earnings growth and valuation. In smallcaps, earnings growth will be higher than largecaps, but valuations are far higher. In midcaps, earnings growth will be higher than largecap and valuations are almost similar.

How comfortable are you with valuations in largecaps as of now?
Largecaps are trading around historical averages and earnings growth is fairly priced in. So, we are comfortable with valuation. They are not cheap enough for you to go overweight, but are reasonable for neutral weight.

And smallcaps, would you say that the froth is out?
No, in certain counters, froth is still there. Valuations are high and earnings growth will not be able to meet those valuation expectations. So, there is a little bit of froth in smallcaps even today.

In smallcaps, floating stocks have been concentrated in a few hands and that is resulting in this higher valuation. If those concentrated holding starts getting liquidated, we will see true price discovery.

We saw a very strong IPO pipeline in 2025. Do you see signs of euphoria in the IPO market?
Yes and no. There are many IPOs where businesses may be real, but valuations are very high. And we have skipped those IPOs. At the same time, there are people who have accused us of investing in highly-priced IPOs. So, beauty is in the eye of the beholder, one has to take a call looking at their research. We think if there is a bad IPO, we will skip it. We are not forced to invest into anything and let market forces prevail.

GMP has become the unofficial metric for investors before investing in IPOs. And a lot of investors are coming in just for listing day gains. How can our regulations deal with it?
So, one thing which we can do is that the anchor allotment is very close to the IPO. Why not make it 30 days before the IPO? Only serious investors will come, people will not come to jump. Today, lock-in for anchor investors is 3 months. Why not make it one year? People who say that we are long term investors, please show your intent. Today, we have a very vibrant grey market. Many times, investors take a call looking at the grey market premium. But it is completely unofficial. Why not make it official? Make it a when-issued market. Let people trade and discover prices automatically. Issuers and investors both will have a fair price discovery. So, we need to carry out some reforms to ensure that our IPO market retains its vibrancy.