Mid-cap stocks have reclaimed the spotlight on Dalal Street, with the Nifty Midcap 100 surging to a fresh record high of 61,220 in November, marking a breakout after a 13-month pause.
Strong and sustained earnings momentum has reinforced investor confidence in the segment even as concerns over stretched valuations continue to simmer beneath the surface.
Mid-caps outperform in Q2
Mid-cap companies under Motilal Oswal’s coverage have now clocked their fourth consecutive quarter of standout performance, posting a robust 34% YoY earnings growth, far exceeding expectations of 23%.
Notably, 16 of 22 mid-cap sectors delivered double-digit PAT growth. The strongest contributions came from Oil & Gas, Metals, NBFCs, PSU Banks, and Real Estate, together accounting for nearly 70% of incremental YoY earnings accretion—underscoring the breadth of the mid-cap resurgence.
Similarly, analysis by SKG Investment & Advisory shows that mid-caps clearly outperformed in Q2, with the Nifty Midcap 150 delivering a robust 30% YoY profit growth and 7.72% YoY sales growth, significantly outpacing both large-cap and small-cap peers.
In contrast, small-caps in Motilal Oswal‘s coverage continued to experience weakness and a broad-based miss, while large-caps delivered an in-line performance.
Mid-caps shine, but glow is getting pricey
However, the latest rally has also put valuations in focus. In the Midcap 150 index, as many as 66.67% of companies in the index are currently trading at a P/E of over 30x, signalling that a large portion of the universe is priced at elevated multiples.
“At the same time, valuation dispersion within the Midcap 150 has widened sharply the P/E standard deviation has surged to 100 points. This is due to some huge names trading at high P/Es; for instance, One97 Communications is commanding a P/E of 746, highlighting a clear polarisation between fundamentally strong, consistently executing companies and sentiment-driven outperformers that have rallied significantly ahead of their earnings,” said Abhishek Mishra, Founding Partner at SKG Investment & Advisory.
The current PE of the Nifty Midcap index of around 34x is close to its five-year median PE of 31x, warranting calls of caution from analysts.
This divergence implies that while select mid-caps offer earnings-backed upside, a meaningful subset is trading with limited margin of safety, warned Mishra.
Mid-cap earnings not uniform
While valuations remain a concern, investors must also note that earnings momentum also remains scattered.
Within the Nifty Midcap 150 index, only 58.67% of companies reported sequential (QoQ) PAT growth in the latest quarter, showing that earnings resilience is becoming more concentrated and stock-specific, as per the analysis by SKG Investment & Advisory. “This reinforces the need for careful screening rather than broad exposure.”
Analysts believe that while mid-caps remain a fertile hunting ground, the current setup demands discipline, valuation awareness and a strong focus on underlying business quality, earnings durability and management execution.
Are mid-caps the best bet in current market?
Analysts remain broadly optimistic on mid-caps, noting that the segment still looks more attractive than large-caps and small-caps from an earnings-momentum perspective. However, they caution that a significant portion of the good news is already priced in, making selectivity crucial.
Abhinav Tiwari, Research Analyst at Bonanza, believes mid-caps retain an edge but require a disciplined approach. “The best strategy now is selective buying, staggered entry, and focusing on companies with strong earnings visibility and clean balance sheets,” he said.
Brokerages echo this view. Elara Capital continues to prefer mid-caps first, followed by large-caps and then small-caps. Its top picks include Marico, Mphasis, Hindustan Petroleum, Godrej Properties, Oberoi Realty, and NLC India.
Mishra also supports a bottom-up approach, highlighting that many mid-cap companies are benefiting from stronger balance sheets, better operating leverage, and capex-linked demand across industrial and infrastructure sectors.
However, not everyone agrees.
Nilesh D. Naik, Head of Investment Products at Share.Market, argues that from a risk-reward standpoint, large-caps look more attractive at current levels. He suggests that investors seeking mid-cap exposure may be better served through Flexi Cap or Value funds, where managers can dynamically adjust allocations as conditions evolve.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
