Why Good Earnings Are Still Destroying Your Smallcap Returns

Fifteen years ago, as a smallcap analyst, my biggest challenge was finding enough good small-cap companies. Information was scarce. Company presentations were hard to come by. Conference calls weren't archived. Management interviews rarely made it to the public domain.

If you wanted to understand a business, you often had to leave your desk. I spent years travelling to industrial clusters across the country, meeting entrepreneurs, walking through factories. Those miles travelled often translated into investment returns.

Back then, simply knowing more than the average investor was an edge.

Today, I'm not so sure.

Over the last few years, I've found myself making a rather uncomfortable observation. The old playbook that helped investors uncover smallcap multibaggers is steadily losing its effectiveness.

Not because India has stopped producing great businesses. Far from it.

But because everyone is looking for them.

Twenty years ago, hidden companies genuinely stayed hidden for a reasonable time. Today, the moment a promising smallcap begins showing signs of superior growth, it appears on stock screeners, social media threads, AI-generated reports, brokerage notes, and countless YouTube channels.

Then comes the flood of money.

Every month, billions flows into smallcap mutual funds. That money doesn't merely chase opportunities. It often compresses future returns into today's prices. In fact, it destroys opportunities.

The result?

Many good businesses remain good businesses. But they stop being great investments.

I suspect many investors have experienced this over the last two years. You discover an excellent company. Revenue grows, profits improve, and management executes well.

Yet the stock goes nowhere. Or worse, it falls despite delivering everything you expected.

The problem isn't always the business. Sometimes, it's simply that everyone already knew the story.

That's why I increasingly believe that finding high growth businesses is no longer the hardest part of investing.

Finding businesses that the market still misunderstands is. There is an important difference.

Years ago, investors were rewarded for collecting information. Today, they are rewarded for interpreting it differently. If you are focusing only on reported growth or future guidance this earnings season, you are likely to miss the bigger picture. Everyone else has and is acting on the same information.

Understanding the people behind the numbers, knowing what price makes sense to buy at, and your asset allocation, all matter much more than number and information screening.

I believe that's where a large part of long-term wealth will be either preserved or destroyed.

Do you agree? Let me know in the comments section.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Quantum Information Services Private Limited (Research Analyst)