The markets have been volatile in the last 3 months. Given the geopolitical tension, the surge in crude rates and the sharp price action in the rupee, investors are torn between a multitude of themes. But the biggest question is whether they should park their money in large caps or midcaps?
The question becomes even more relevant when one tracks the movement of key large and midcap indices. While the benchmark indices have been flat, the small and midcaps have been buzzing. The Nifty Midcap is up over 7% while the Nifty declined by less than 1% in the last 3 months
Large caps Vs midcap: The valuation gap
While some market experts are betting on the valuation gap in high-conviction large caps, others are betting on the high-growth opportunities in midcaps.
In our exclusive quarterly feature leading fund managers and market experts were almost unanimous in allocating the maximum amount of their portfolio to equities, but they were divided on the share allocated for large caps and midcaps.
Anchor Valuation: Why the valuation discount favours large caps
In terms of allocation, key market experts are betting on the valuation gap in several marquee large cap counters. Market veteran Ajay Bagga highlighted that his model portfolio remains “deeply anchored by India’s macro resilience.”
He believes that “large cap Indian equities, in particular, are presenting an attractive, cooled-down valuation environment, trading nearly 10% below their 7-year median P/E. This sets the stage for a powerful, large cap ‘mean-reversion catch-up’ trade throughout the remainder of 2026.”
According to Deven R Choksey, Founder and MD of DRChoksey Finserv, “the current quarter demands a balanced approach that combines structural growth with opportunistic positioning.”
He believes that “by anchoring portfolios in margin-expanding power ancillaries, capitalising on the temporary valuation discount in top-tier Nifty stocks, riding the regulatory tailwinds with mega-banks, and preparing for the upcoming wave of institutional IPOs, investors can reliably outpace broader market benchmarks.”
Anand Shah, CIO PMS & AIF – ICICI Prudential AMC pointed out though the near-term investment environment has become more challenging, they “continue to favour large caps as the portfolio’s anchor. Exposure to mid- and small cap companies remains selective, with an emphasis on businesses demonstrating sustainable competitive advantages.”
The growth bias: Structural catalysts for select midcaps
The earnings are seen as a major catalyst for the markets going forward. Brijesh Ved, Head-PMS, Kotak Mahindra AMC highlighted that “from an asset allocation perspective, the current macro backdrop supports a balanced yet growth-oriented strategy for Indian investors, with equities remaining central given the strength of domestic economic drivers and long-term earnings growth.”
Within equities, he believes “a calibrated allocation towards mid- and small cap segments is warranted, as these are likely to benefit disproportionately from India’s relatively stable positioning, easing commodity and oil prices, and improving domestic growth momentum, alongside more reasonable valuations following recent corrections.”
Sandipan Roy, CIO – Motilal Oswal Private Wealth corroborated the views and explained the rationale driving the bias towards midcaps. “While large cap valuations are fair to attractive, muted growth expectations coupled with continuous outflow pressure may limit the upside,” he added.
According to him, “mid & small cap valuations are well supported by the earnings on an overall basis as companies in the segment continue to benefit from long-term themes such as formalisation, digitalisation and India’s investment cycle. Hence, we are overweight on this space.”
Conclusion
All in all, most market experts and fund managers are focussing on value buys with attractive entry points. While some believe this is the time to maximise large cap exposure, others are also taking this opportunity to look out for possible bargains in the small and midcap space.
For a detailed quarter-by-quarter analysis of how to shape your portfolio, you can track this quarterly feature on financialexpress.com.
Disclaimer: Investments in equities, including large-cap, mid-cap, and small-cap stocks, are subject to market risks, and the allocation strategies discussed by market experts reflect their personal analytical frameworks rather than definitive performance guarantees. Past index performance, valuation discounts, or earnings catalysts do not ensure future returns, and the relative volatility of mid- and small-cap segments may vary significantly from historical trends. Readers are advised to evaluate their risk appetite and consult a SEBI-registered financial advisor before making any asset allocation decisions based on these market commentaries.
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