Investing in emerging markets: in which small-caps to look for growth points in 2026

2025 in practice showed that small capitalization companies in emerging markets are able to compete with large issuers - even despite the lag that persisted in the third quarter. At the end of the year, the return of the equally weighted Emerging Markets Small Cap Index EW, calculated by analyst Aldiyar Anuarbekov for Oninvest, amounted to 18.25% in dollars*. For comparison: broad market index S&P 500 grew by 16.65%, Russell 2000, which includes shares of small and middle capitalization companies - by 11.21%. The 8.06% gain of Emerging Markets Small Cap Index CW, which includes the same companies, but weighted by capitalization, shows that the growth is more even and not concentrated in a few large securities.

This result is logical for the segment: small-cap indices in emerging markets usually react more strongly to local economic and industry events than large issuers. This is pointed out by the American financial company MSCI (Morgan Stanley Capital International) in the description of its MSCI EM Small Cap Index: the dynamics of small-caps reflects internal processes in the economies of countries to a greater extent than global trends that determine the movement of large companies.

Since the beginning of 2026, the equal-weighted Emerging Markets Small Cap Index has gained 4.2% in dollar terms (here and below data as of February 12). By comparison, over the same period, the Russell 2000 has gained 5.11%, while the S&P 500 Index has gained only 0.07%.

154 out of 239 companies in the Emerging Markets Small Cap Index are up. At the same time, the dynamics differ markedly by country: in Brazil 49 out of 57 companies grew, in India - 22 out of 61. This is an important signal: the small capitalization segment in emerging markets is now driven primarily by local stories rather than by a single global trend.

Selected three companies from the Emerging Markets Small Cap Index with growth prospects in 2026:

Bajaj Consumer Care: profit growth in India's FMCG sector

Bajaj Consumer Care is one of the prominent players in the personal care market. The company has historically been associated primarily with its key brand, Bajaj Almond Drops hair oil. Since the beginning of 2026, Bajaj Consumer Care shares have gained 46.32% in terms of dollars (author's calculations hereafter) - quite a strong performance for a defensive sector.

In the third quarter (ended December 31, 2025), revenue grew 25% year-over-year to 2.9 billion Indian rupees (about $31.9 million) and net income increased 72.9% to 476 million rupees ($5.3 million).

In May 2025, the company completed the buyout of the remaining 51% of Vishal Personal Care (Banjara's brand), fully consolidating the asset and expanding the product line in the hair and skin care segment. For a business dependent on a single key product, the line extension increases the resilience of revenue to changes in demand and raw material prices.

Analysts at ICICI Securities reiterated a "buy" recommendation and a target price of INR 450, implying a potential upside of another 19% from the current price. ICICI Securities separately pointed out the risks of dependence on Almond Drops Hair Oil and sensitivity to commodity prices.

MTAR Technologies: betting on infrastructure and defense projects

MTAR Technologies is one of the few Indian suppliers of high-precision components for nuclear power and defense/aerospace programs, where customers value proven quality and contracts show portfolio utilization for several years ahead. For the third quarter of 2025 (ended December 31, 2025), the company's operating revenue increased 59.3% year-on-year to about 2.8 billion Indian rupees ($30.9 million), while net income soared 117.3% to 346.9 million rupees ($3.9 million).

Since the beginning of 2026, MTAR Technologies stock is up about 46% in dollars. The key factor for investors is not so much consumer demand, but rather the discipline of contract fulfillment, transparency of revenue forecasts and order book. For example, in December 2025, the company announced contracts for Kaiga Units 5 and 6 nuclear power plant units under construction in India - deliveries, according to the plan, will be made in stages until February 2030.

Motilal Oswal in its review dated January 30 (available at Oninvest) maintained a Buy recommendation on the stock with a target price of 3900 Indian rupees. Analysts at Phillip Securities assigned a Buy rating to the stock with a target price of 4441 Indian rupees, which implies a potential upside of 24.75% from the current value.

MRV: betting on housing and restoring efficiency

MRV Engenharia e Participações is a Brazilian residential real estate developer, one of the largest players in the affordable housing segment and mass projects across the country.

In the report for the third quarter of 2025, the management emphasized the growth of profitability and reduction of the debt burden. The net debt to EBITDA ratio for the first nine months of 2025 fell to a ratio of 1.1 versus 1.9 a year earlier, compared to 6.6 in 2022. In the third quarter of 2025, net revenue rose 14.7% year-on-year to 2.6 billion Brazilian reais ($498 million), while net income added 32.4% year-on-year to 813 million reais ($152 million).

In the quarterly report, the company noted an increase in the price cap of the federal Minha Casa Minha Vida home purchase assistance program, potentially supporting demand in segments where MRV is active. For developers like MRV, this is one of the key sources of "structural" demand in the affordable segment. MRV also has an intangible factor in its investment story: the company was among the top 7 out of 250 participants in the AI Lighthouse Awards study and was named the most valuable brand in the construction sector by TM20 Branding and InfoMoney.

MRV Engenharia e Participações shares are up about 34% since the beginning of 2026. BTG Pactual (Jan. 22 report), maintained a "buy" recommendation with a target price of 12 Brazilian reais, which implies a 22.3% upside. UBS on January 13, maintained a "buy" recommendation with a target price of 12 Brazilian reais.

Emerging markets have clear structural support in early 2026. According to Bloomberg Intelligence, strategies based on selecting companies based on a set of specific factors in emerging markets have historically commanded a higher premium - especially in value and momentum factors. That is, two simple approaches have worked better over the long haul in emerging markets: buying companies that look cheap relative to their performance and companies that are already showing strong price appreciation.

The key question for 2026 is whether the expected revaluation in corporate reporting will be confirmed. The market may pay higher prices for emerging markets equities this year, either because investors are willing to accept higher multiples or because earnings forecasts are revised upward. According to Bloomberg Intelligence, earnings estimates for merging markets are more accurate than usual in 2025, and the MSCI EM index earnings growth consensus for 2026 is about 23% after about 16% in 2025. This is a rare case where forecasts look not just optimistic but also relatively realistic.

At the same time, the picture by region remains mixed. In Latin America, a strong start to 2026 after a record 2025. Bloomberg Intelligence attributes this to widening multiples and upward revisions to earnings forecasts - including on the back of higher metal prices that have supported commodity companies. In Brazil, easing financial conditions and recovering domestic demand are creating a more favorable environment for non-resource sectors, including mass housing developers. The coming reporting season will test whether this combination of export support and domestic demand is sustainable.

Does not constitute individualized investment advice.

*Oninvest Emerging Markets Small Cap Index includes 239 companies from emerging markets and is calculated on an equal weighted basis, so that the contribution of each security to the overall result is comparable. Yields are recalculated in dollars to reflect currency dynamics.