The Nifty Mid-cap 50 trades at nearly 34 times earnings against the Nifty 50’s 20 and Nifty small-cap 50’s 32.4. It is the costliest on price-to-book as well

The relentless selling by foreign portfolio investors in the last couple of years has been largely concentrated in the large-cap stocks where the FPI holdings are higher. Domestic investors have, therefore, been chasing mid- and small-cap stocks where the selling intensity is lower. This has resulted in mid-cap stocks being very expensive.

The Nifty Mid-cap 50 trades at nearly 34 times earnings against the Nifty 50’s 20 and Nifty small-cap 50’s 32.4. It is the costliest on price-to-book as well.

The reason for the Nifty Mid-cap 50’s premium is simple and it is not profits. Over the past five years, the mid-cap index has returned close to 20 per cent annually, while its earnings have grown at only about 12 per cent, slower than the Nifty 50’s.

Vinod Nair, head of research at Geojit Investments, said: “Currently, mid-caps are trading at a premium valuation compared to large-caps. A stock-specific approach may be required to identify emerging themes and value opportunities within the mid-cap segment.” BHEL, which trades at a P/E far above peers on the strength of its ₹2.4 trillion order book, and Laurus Labs, at over 85 times earnings on expectations of strong growth in its CDMO business, capture the pattern.

The year 2024 showed this most starkly. Mid-cap profits actually fell that year, yet the index still rose over 20 per cent, a gain built entirely on multiple expansion.

The bulls have a counter, and it is a fair one. Mid-cap earnings have surged nearly 50 per cent since 2024, and that has cooled the index’s price-to-earnings ratio from an extreme 45 to 34. A part of the excess has clearly been worked off. But 34 times is still an elevated multiple, well above the index’s own long-term average. In effect, today’s price assumes the recent profit surge will continue uninterrupted. If earnings growth slips back towards its 12 per cent trend, the market will be left holding a premium it can no longer justify, and history suggests such gaps close through falling prices.

“Small-caps, on the other hand, are not trading at similar premium levels and offer a relatively better investment opportunity, as they are currently trading at a discount to mid-caps. Meanwhile, large-caps are trading at more accommodative valuations, marginally below their long-term averages due to the significant impact of FII selling in 2025-26. As a result, they appear to offer the most attractive investment option from a risk-reward perspective,” explained Nair.

Published on July 10, 2026