India’s equity rally is increasingly being driven by mid- and small-cap stocks rather than large-cap heavyweights, according to a recent report by Motilal Oswal Financial Services. Strong earnings growth, rising valuations and sustained investor interest have pushed the share of mid- and small-cap stocks in total market capitalisation to record highs.
MOSL noted that the sharp outperformance of mid-caps and small-caps has significantly altered the market’s composition. As of May 2026, mid-cap stocks accounted for 20.3 per cent of total listed market capitalisation, while small-caps contributed 21.1 per cent. In contrast, the share of large-cap stocks has fallen to a record low of 58.7 per cent.
The report attributes this shift to stronger earnings momentum in the SMID (small and mid-cap) segment, alongside elevated valuations and a surge in sectoral indices dominated by these stocks. Several mid- and small-cap-heavy sectors and companies have scaled new all-time highs. On a month-on-month basis, mid-caps led the gains, with metals, capital goods, and healthcare sectors emerging as the top performers.
In year-to-date performance for calendar year 2026, SMIDs have continued to outperform large-caps, supported by strong gains in capital goods, metals, defence, and oil & gas stocks. In contrast, technology has remained the key laggard, reflecting persistent weakness in IT stocks, the report noted.
In terms of valuations, on a 12-month forward price-to-earnings basis, private banks, consumer, technology and retail sectors are trading at discounts of 35 per cent, 10 per cent, 26 per cent and 32 per cent, respectively, to their 10-year averages. In contrast, sectors such as automobiles, capital goods, non-lending NBFCs, healthcare and chemicals are trading at premiums, with capital goods in particular commanding a steep 56 per cent premium over its long-period average.
A similar pattern is visible in other valuation metrics. Private banks are trading at a 24 per cent discount to their long-term price-to-book average, while PSU banks and lending NBFCs are trading at a 36 per cent premium. On an EV/EBITDA basis, real estate remains the only sector trading at a discount, whereas metals, oil & gas, utilities and cement are at or above their historical valuation levels.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
