Mid and small-cap earnings growth continues to support a positive market outlook despite benchmark index consolidation, according to Arunasset's Ankit Patel and Alpha Accurate Advisors' Rajesh Kothari. The Nifty Midcap 150 and Nifty Smallcap 250 delivered close to 30% year-on-year EPS growth in Q4, while brokerage estimates factor in over 25% earnings growth for smaller companies in FY27. As reported by The Hindu BusinessLine, Patel noted that consolidation has removed excesses in the broader market, with index valuations broadly close to historical averages. The earnings growth in the small and midcap space is expected to beat expectations, supporting medium to long-term opportunities. Kothari emphasized that "the earnings delivery is what is basically the driving factor," noting that companies beyond the top 50 are currently benefiting from "tailwinds," unlike several large-cap sectors facing headwinds.
The mid and small-cap segments have undergone a structural transformation over the last five years, with companies no longer being "small" or "mid" but rather big companies ranging between Nifty 100-1000, according to Kothari's analysis. As reported by ET Now, median profit levels in midcap and smallcap indices have risen sharply, with many companies turning debt-free or net cash, significantly improving their resilience. "When you become debt free, you survive the downturn… and when the cycle turns, you participate much stronger," Kothari noted. The profitability metrics have also improved dramatically, with ROE improving significantly to 15% plus for many companies, accompanied by stronger cash flow conversion and better financial discipline. Kothari stressed that this earnings growth will be higher compared to the large cap as a basket, especially as mega-cap companies face base challenges and sector-specific constraints.
India's mid and small-cap segment has demonstrated remarkable resilience amid global volatility, with over 15% earnings growth over the last 12 months, materially higher than the roughly 9% growth seen in large-cap segments. The Nifty Midcap 100 index has exhibited positive momentum in 2026, registering a year-to-date gain of roughly 1.27% while outperforming the broader benchmark Nifty 50. Trading around the 61,000 mark, the index has navigated market volatility, buoyed by resilient corporate earnings and strong domestic demand. This structural advantage is evident in the broader opportunity set, where 20-30% of companies are capable of growing meaningfully faster than nominal GDP growth for extended periods, translating into over 150 potential high-growth companies at any point in time. Compare this with the Nifty 100 universe, where the number of companies capable of sustaining exceptionally high growth is naturally far lower, perhaps closer to 15-20 companies.
Strong domestic institutional investor (DII) participation has been a key driver of market resilience, with DIIs buying ₹2.09 lakh crore worth of equities during the October-December 2025 quarter, averaging nearly ₹70,000 crore per month. As reported by The Hindu BusinessLine, following the February 28 market correction, DIIs turned even more aggressive and bought ₹1.43 lakh crore in March alone. Patel noted that large domestic investors did not panic when uncertainty spiked, using the correction to deploy capital. DII buying moderated to ₹51,064 crore in April after markets rebounded sharply, with the Nifty 50 rising 7.5%, Nifty Midcap 100 gaining 13.6%, and Nifty Smallcap 100 advancing 18.4% during the month.
Kothari highlighted several preferred investment themes including auto ancillaries, EMS (electronics manufacturing services), capital goods, discretionary consumption, banking and financials, and emerging infrastructure segments. On EMS specifically, he said "EMS players are doing fantastically well… Make in India, PLI and China+1 are all helping," adding that many companies could scale rapidly given their relatively low base. He also pointed to opportunities in data centres, HVDC infrastructure, and electrification. Kothari expressed a clear preference for discretionary consumption over traditional FMCG, arguing that newer segments offer stronger growth visibility. "It is not a one- or two-quarter story… it is a structural growth driver," he said, citing areas such as organised retail, building materials, and niche consumer categories. However, he remains cautious on IT services, warning that valuations have not corrected enough despite price declines, noting that most IT companies are growing at just 3-6% while still trading at relatively high multiples.
