India’s large cap, midcap and small cap stocks are trading at a wide valuation gap, with smaller companies commanding much higher earnings multiples than their larger peers. Rajeev Thakkar, Chief Investment Officer and Director at Parag Parikh Financial Advisory Services, said the fund house would continue to assess opportunities on their individual risk-reward rather than favouring stocks simply because they belonged to a particular market cap category.
In his August 4, 2026 note to unitholders, Thakkar cited data from Screener.in showing that the Nifty 100 traded at a price-to-earnings ratio of 20.8, against 30.7 for the Nifty Midcap 150 and 34.6 for the Nifty Smallcap 250. The figures showed a substantial valuation premium for mid and small caps over large caps.
The comments came after around two years of relatively muted equity-market performance. Thakkar said the period of time correction and price correction in some segments had increased the number of opportunities available to PPFAS and improved its outlook for future returns.
Large caps trade at a much lower earnings multiple
| Index | Price-to-earnings ratio |
| Nifty 100 | 20.8 |
| Nifty Midcap 150 | 30.7 |
| Nifty Smallcap 250 | 34.6 |
Source: Screener.in data cited by Rajeev Thakkar in his August 4, 2026 note to unitholders.
The numbers showed that the Nifty Midcap 150 traded at about 48% above the Nifty 100’s earnings multiple, while the Nifty Smallcap 250 commanded a premium of about 66% to the large-cap index. The small cap valuation was also about 13% higher than the midcap multiple.
Thakkar said PPFAS continued to invest in smaller companies, but market capitalisation was not the basis for deciding where to deploy money.
“We do invest in small caps and we do invest in midcaps,” Thakkar said. He pointed out that the Real Estate Investment Trusts owned by PPFAS, for example, fell within the midcap and smallcap space. He added that the fund house would invest based on opportunity and risk-reward rather than market cap labels.
“We will invest where we find the opportunity and a favourable risk / reward and not be driven by labels,” Thakkar said.
Thakkar questions assumption that smaller stocks always deliver higher returns
The valuation gap also formed the backdrop to Thakkar’s challenge to the assumption that smaller companies automatically provide superior returns.
“For all those who think that it is a law of physics that smaller companies deliver higher returns, I would like them to look at what is happening in the US markets,” Thakkar said.
His point was not that PPFAS was moving away from small and mid caps. Rather, the fund house was unwilling to make market capitalisation the deciding factor when assessing an investment.
The valuation data in the note showed why that distinction was relevant. With the Nifty Smallcap 250 trading at 34.6 times earnings against 20.8 times for the Nifty 100, smaller stocks as a group were already carrying a sizeable premium. That premium would need to be assessed against the earnings potential and risks of individual companies rather than accepted simply because they were smaller.
Two years of market correction have increased opportunities, says PPFAS
Thakkar’s comments on valuations came after a prolonged period in which Indian equity markets had not delivered the returns that some investors had expected.
He said the period should not be viewed as unusual for equities, which can go through extended phases of sideways performance or price declines. At the same time, the correction had changed the investment opportunity set available to PPFAS.
“Given the two years of time correction in the overall markets and price correction in some segments, the available opportunities are increasing, and the outlook for future returns here on appears to be improving,” Thakkar said.
The fund house had also reduced its cash position as it found more opportunities to deploy capital. Thakkar said cash levels in the Parag Parikh Flexi Cap Fund had peaked at about 25% and had fallen to around 14%-15%. He said the fund could move towards single-digit cash levels over time.
Thakkar also said holding cash during the previous two years had not harmed investor returns and had helped at the margin during the sideways market.
PPFAS is not chasing small caps because of market trends
The same investment approach applies to market themes, according to Thakkar. He said the fund house was aware of themes such as defence, energy transition, artificial intelligence and financial technology, but would not buy stocks simply because a particular theme was popular.
“We have not been living under a rock. We do see the media headlines and are aware of Defence, Energy transition, AI, Fintech and other trends / themes in the markets,” Thakkar said.
He added that the fund house would focus on opportunities that were attractive and actionable rather than investing because a particular theme was fashionable.
“We will invest where we find attractive, actionable ideas and not invest purely on account of a theme being in fashion,” Thakkar said.
That approach also applies to the valuation gap between large and smaller companies. PPFAS can invest in small and mid caps when the underlying opportunity justifies the valuation, while large caps can receive capital when their risk-reward is more attractive.
PPFAS sees IT services sell-off as an opportunity
Thakkar also addressed concerns surrounding artificial intelligence, employment and Indian information technology services.
He compared the current concerns with earlier fears around the computerisation of Indian banks. Banks moved from handwritten ledgers to computerised branches, then to centralised core banking systems, internet banking and mobile banking. Despite that progression, Thakkar noted that banks eventually employed more people than they had in the 1980s and 1990s.
“To my mind, the fears around employment are largely overblown at the aggregate level,” Thakkar said, while acknowledging that individual companies and roles could face disruption and that retraining and re-employment could cause real pain.
On information technology services stocks, he said PPFAS had taken a different view from the prevailing market concern.
“On IT services, clearly we are outliers in terms of looking at the current sell off as an opportunity rather than an existential threat,” Thakkar said.
PPFAS retains its basket of four private-sector banks
Thakkar also provided an update on PPFAS’ private-sector bank holdings. He said the fund house continued to own a basket of four private-sector banks and that there had been no change in its overall view of the group.
“Overall, there is no change to the outlook for the basket of the 4 private sector banks that we own,” Thakkar said.
On HDFC Bank, he said the issues reported so far did not appear to pose a material threat to the bank’s franchise or customer base. He also referred to the regulatory oversight, diversified ownership and governance mechanisms around banks.
Indian Energy Exchange remains a small portfolio position
Thakkar also discussed Indian Energy Exchange and the market-coupling debate. He said the position represented less than 1% of the portfolio.
The regulator and courts had allowed exploration of market coupling, but Thakkar said there was no certainty about the timing, form or market segments that could eventually be affected. PPFAS, he added, would reassess its investment thesis as more information became available.
“We do not know anything apart from what is in the public domain, and we will revisit our investment thesis as and when developments happen and more data comes in,” Thakkar said.
Valuation gap puts greater focus on stock selection
The central message from Thakkar’s note is not that small and mid-cap stocks have become unattractive as a group. PPFAS continues to own companies in those segments, including Real Estate Investment Trusts.
The valuation numbers instead show why stock selection becomes increasingly important when the market assigns a much higher earnings multiple to smaller companies. The Nifty Smallcap 250’s 34.6 times price-to-earnings ratio stood well above the Nifty 100’s 20.8 times multiple as of August 4.
For PPFAS, the answer is to assess the opportunity rather than follow a market-cap classification. That means the fund house can continue buying smaller companies when it sees adequate potential, while also finding value in large-cap stocks when their valuations and business prospects offer a better balance between risk and potential returns.
Conclusion
PPFAS has not ruled out small and mid-cap stocks. Instead, Thakkar said the fund house would continue to invest wherever it found an attractive opportunity and favourable risk-reward. With the valuation gap between large and smaller companies already substantial, his message was that market capitalisation alone should not determine what investors are willing to pay for a stock.