Neither largecaps, nor smallcaps! India Inc’s Q4 result season belongs to the middle order

Even as investors debate whether to chase largecap safety or smallcap thrill, Q4 earnings have quietly handed the trophy to a third contender—India Inc’s middle-order.

Midcaps have emerged as the surprise winners of the March quarter, delivering relatively better numbers across revenue, EBITDA, profit before tax and net profit. Domestic brokerage firm Motilal Oswal said within its universe, midcaps posted a robust 19% YoY PAT growth, beating not just estimates (10% higher than expected) but also the performance of both largecaps (+10%) and smallcaps (a disappointing –16%). The earnings season, once again, proves that resilience and growth are often found in the mid-ranks.

Motilal data shows this wasn’t a narrow performance. Midcap Metals clocked an 84% YoY jump in PAT, accounting for over a third of incremental profits. Public sector banks in the midcap universe delivered a 39% surge, driving nearly 50% of total PAT growth. Electronics manufacturing services (EMS) continued their hot streak, rising 70% YoY.

The quality of results was notable, with widespread distribution of strong growth across several midcap sectors – in several cases better than the largecap counterparts, Motilal’s Gautam Duggad said.

Also read | Sensex will hit 1.5 lakh by 2030 & 3 lakh by 2035! Raamdeo Agrawal makes big prediction

Other sectors that posted strong growth included Capital Goods (+30%), Consumer Durables (72%), and NBFCs – both lending (23%) & non-lending (36%). “Comparatively, the mid-cap technology sector was subdued, posting a 12% YoY growth (est. 19%), but better than the large-cap peers – which is in line with our long-standing thesis that mid-cap IT is poised to grow structurally above the large-cap IT names,” he said.

“While overall earnings have been ahead of estimates (a welcome departure from the past 3 quarters’ outcome of broad earnings misses), the Mid-cap segment has been an unexpected standout surprise – underlining its critical role in throwing up growth leaders for future – thus broadening the market’s investable set of companies,” Duggad said.

Market experts also point out that as the market capitalisation of midcaps has grown in the last 2-3 years, FIIs are also showing greater interest due to the liquidity factor.

Valuations, however, are getting stretched, warns Trideep Bhattacharya, CIO-Equities, Edelweiss Mutual Fund. “Mid and smallcaps are now trading at a 17–25% premium to their 10-year averages. So, the earnings momentum must continue. If growth lags, these stocks will be in the penalty box.”

That calls for stock-picking discipline. “Where there is a valuation premium, it must be matched with an earnings growth premium. The market is currently unforgiving of any mismatch,” Bhattacharya added.

Still, Bhattacharya believes that midcaps can remain in favour for the right investor profile. “For conservative investors, flexicap funds work. For moderate risk-takers, multicap funds. And for those with higher risk appetite and a 5–10 year horizon, midcap funds are ideal.”

Dr. Joseph Thomas, Head of Research at Emkay Wealth Management, says both mid and smallcaps offer better value to the portfolio on a longer-term basis. “This is because of two reasons. After the corrective downward movements seen in the last three to four months, the valuations are now at reasonable levels. The segment offers better growth and therefore, better price performance,” he said.

In short, the earnings strength, sectoral diversity, and growing institutional participation make midcaps too important to ignore.

Also read | Rs 15 lakh crore in net profit! India Inc’s top 500 cos break records in FY25 despite downgrades

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)