<div id="readability-page-1"><div>Mid and smallcap stocks have begun 2026 on shaky ground. While the midcap index is down around 4 percent so far this year, the real damage lies beneath the surface. On a median basis, small and mid-cap stocks are down over 25 percent, with several quality names correcting more than 50 percent from their peaks. Market breadth remains weak, reflecting fragile sentiment and the strain on investor portfolios.Importantly, this correction is not new. The selloff has been playing out since September 2024, allowing for both price and time correction, a phase many believe has helped flush out excess froth after years of sharp outperformance.Opportunity or a waiting game?This sets up a familiar investor dilemma. Is it time to cut losses or does this phase provide an opportunity to start spotting potential multi-baggers? Market expert Anshul Saigal believes opportunities are starting to emerge, particularly as earnings momentum shows early signs of improvement. After four consecutive quarters of downgrades, Nifty earnings saw a roughly 2 percent upgrade in the last quarter. Meanwhile, the Nifty Smallcap index is expected to deliver over 30 percent earnings growth, helped by a low base in the coming quarters.But not everyone is convinced that this is the time to aggressively hunt for multi-baggers. Vinit Sambre of DSP Mutual Fund points out that midcaps have gone through one of their strongest re-rating cycles over the past five years, leaving valuations still elevated in parts of the market.“Corrections after long re-rating phases tend to be time-consuming and uneven,” Sambre says, adding that this is a phase to be selective and patient rather than chase headline multi-bagger narratives.What to look for in potential multi-baggers?Both experts stress that stock selection, not timing, is key. Anshul Saigal advises focusing on companies with strong earnings growth, sound governance, robust cash flows, large market opportunities, improving returns on capital and reasonable valuations.Vinit Sambre adds that investors should prioritise business and management quality, balance-sheet strength, sustainable ROCE (return on capital employed) and valuation discipline, along with the patience to hold through volatile phases.Where selective opportunities may lie?Saigal sees value emerging across capital goods, industrials, energy, banking and finance, autos, consumer durables and metals, with even newer themes like defence, renewable energy and hi-tech manufacturing seeing meaningful valuation resets.Sambre, however, urges investors to look beyond past winners. He prefers durable compounders over flashy stories, highlighting areas such as hospitals within healthcare, select NBFCs emerging from asset-quality cycles, power ancillaries linked to long-term capex, and IT services where valuations have reset after prolonged underperformance.On defence and railways, two sectors that delivered exceptional multi-bagger returns in recent years, Sambre notes that gains were driven by strong order inflows, localisation themes and government-led capex. However, after such sharp outperformance, valuations ran ahead of fundamentals, leading to the current correction. Over a 10-year horizon, he believes both sectors continue to offer structural growth opportunities, but future returns will depend far more on earnings delivery and capital efficiency rather than further valuation re-rating.As Saigal puts it, quoting legendary investor Warren Buffett, &#34;You pay a very high price for a cheery consensus.” In uncertain markets, he says, opportunity often lies where patience and discipline meet.Follow all LIVE updates from the stock markets here.Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.</div></div>

Mid and smallcap stocks have started 2026 poorly, with the midcap index down 4% and many stocks down over 25%. Market sentiment is weak, raising questions about whether to cut losses or seek multi-bagger opportunities. Experts suggest focusing on strong earnings growth and sound governance for stock selection. Anshul Saigal sees potential in sectors like capital goods and energy, while Vinit Sambre advises caution, preferring durable compounders over flashy stories. Both emphasize the importance of patience and discipline in uncertain markets.

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As mid & smallcaps kick off 2026 on a rough note, is this the time to spot multi-bagger jewels?