Indian mid-cap companies have delivered exceptional earnings performance in Q4 FY26, with a third of Nifty midcap 100 companies achieving average growth of 23% year-on-year, significantly outpacing large-cap performance. According to Motilal Oswal Financial Services, within their MOFSL Universe, midcaps delivered stellar earnings growth of 29% YoY, compared to largecaps' 14% growth. The mid-cap universe typically comprises companies from non-banking finance companies (NBFCs), banks, consumer-facing sectors, realty and utilities that have been generating strong profits. However, export-oriented sectors such as chemicals, engineering components, capital goods, cement and telecom recorded lower profit growth during the quarter.
Indian equities are facing significant underperformance against global markets, with Indian stocks down 7.5% this year while South Korea, whose economy is projected to grow at half India's rate at 3.3%, has rallied 74%. According to The Economic Times, this stark divergence is driven by corporate earnings rather than economic growth fundamentals. Global markets are pricing in 20-40% earnings-per-share (EPS) growth, 12-18 times price-to-earnings, versus India's 18% EPS growth. The benchmark Nifty 50 remains around 8% below its September 2024 peak and nearly 5% below pre-war levels, while South Korea's market value has reached $4 trillion, double its GDP, driven by chip maker companies like Samsung Electronics and SK Hynix.
The current market rally is primarily driven by the artificial intelligence investment frenzy, with Nvidia Inc. valued beyond $5 trillion, more than India's entire GDP. As reported by The Economic Times, the unprecedented demand for AI chips is forcing analysts to forecast earnings growth of 220% for Korea and 58% for Taiwan, compared to India's 18%. Samsung Electronics and SK Hynix are projected to earn profits of $250 billion and $150 billion respectively, while Taiwan's TSMC is projected at $100 billion. In contrast, the entire Indian listed corporate system may earn around $200 billion. The rush to own chip makers has pushed South Korea's market value to $4 trillion, double its GDP, while India's market capitalization remains at around $4.9 trillion against its GDP of $4.15 trillion.
The US, South Korea and Taiwan markets have outperformed, driven largely by strong global fund allocation towards artificial intelligence and semiconductor manufacturing themes, where India has relatively lower exposure. Domestic institutional investors (DIIs) continued to provide strong support to the market amid sustained foreign selling. DIIs invested $5.4 billion in April, marking the 12th month of significant buying activity, barring February 2026. In contrast, foreign portfolio investors (FPIs) have remained net sellers of Indian equities this year, pulling out around $21 billion, while DIIs have infused nearly $33 billion during the same period. On valuations, MOFSL noted that India is still trading at 19.5 times forward earnings, making it unattractive even to other emerging market peers reflected in MSCI EM at 12.5 times.
India faces additional headwinds from external pressures, with the US-Iran war pushing up energy prices by more than 40%, steeply raising import bills and threatening medium-term supply disruptions. According to Barclays economist Aastha Gudwani, the most exposed macro variable to current shocks is the balance of payments, followed by fiscal position. The Indian rupee is trading at historic lows as foreign investors pull out record funds, with the Nifty down about 8% since its January peak in rupee terms and 12% in USD terms. This currency weakness compounds the challenge of attracting foreign capital, making India's long-term dependence on capital flows for meeting imports more pronounced during this period of global AI investment frenzy.
