While the benchmark indices – Sensex and Nifty – are hovering close to their all-time high, small and midcap (Smid) indices, which constitute of higher growth companies than large caps, have underperformed on a year-to-date basis so far – the first time since 2022.
This comes after a substantial outperformance seen in 2024 as well as 2023. In 2025, , while large cap benchmarks Nifty 50 and Sensex rose around 9-10%, the BSE Midcap index has only risen by 1.3% and the BSE Smallcap has fallen 6.1%.
What do experts say?
According to experts, this the primarily because of the expensive valuations ruling in the broader market. Saurabh Mukherjea, co-founder of Marcellus Investement Managers attributed this performance to the economy and earnings growth seen during this period. “The valuations are also punchy hence it is difficult for Smid-caps to make a move,” he said.
As of Tuesday close, the trailing twelve month price-to earnings multiple for BSE Largecap was 23.54x while BSE Midcap was 32.34x, and BSE Smallcap was 32.70x.
Ashwini Shami, Executive Vice President & Portfolio Manager at Omniscience Capital, believes that there is more runway left for the large cap stocks and the second half of this financial year will be a play on predicting the large cap versus mid and small cap performance. He said that a shift will only happen if the valuation differential narrows further.
According to him, this was expected as the index heavyweights had gone ahead of the fundamentals. He said, “Nifty was also undergoing a time correction and facing constraint from FIIs flows and mutual fund inflows were also higher in multicap and small and mid-schemes, so large cap liquidity was not there.”
However, he is not negative on the overall small cap universe as he sees multiple mispriced opportunities, in the mid cap space he said it is difficult given a smaller number of stocks.
What did Kranthi Bathini say?
Kranthi Bathini, Director of Equity Strategy at WealthMills Securities also noted that the flow is going towards large caps due to attractive valuations. He expects consolidation to continue in the small and mid-cap segments in the next quarter as well and noted that the Nifty sustaining above 26,000 and more earnings upgrades will be key for a reversal in this trend.
A Motilal Oswal report said Friday that after (large cap indices) having reclaimed the highs, it expects a new leg of uptrend in markets, especially as the corporate earnings environment has improved owing to multiple factors such as stimulative fiscal and monetary measures, better liquidity, a likely thaw in the abruptly strained Indo-US relationships, and a softer base for demand and earnings.
