Midcaps, smallcaps set for strong December quarter earnings

markets

• Midcaps forecast 16% profit growth, driven by Real Estate and Industrials
• Smallcaps may see 30 percent profit growth, mainly due to a low base effect
• Experts favor largecaps and midcaps; smallcaps underweight due to high valuations.

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Midcap and Smallcap companies are likely to report strong earnings in the December quarter, with Smallcap earnings expected to improve largely because of a low base, experts said.

According to Elara Capital, Midcaps’ profit after tax is projected to grow 16 percent year on year, driven by strong expansion in Real Estate at 291 percent, Industrials at 57 percent, Cement at 44 percent, Energy at 39 percent, Auto at 35 percent and Midcap IT at 30 percent.

In contrast, Building Materials is expected to see a 17 percent decline in profit growth, while Banks and Metals may contract by 9 percent and 4 percent respectively during the quarter.

Elara added that the Smallcaps are set to deliver 30 percent year on year profit after tax growth in Q3FY26E, significantly outpacing both mid and large caps. This growth is being supported by Cement moving from loss to profit, along with better performance in Real Estate, Auto and Utilities.

However, Transportation, IT Services and Banks in the Smallcap segment are expected to post flat to negative year on year profit after tax growth, indicating that the improvement is uneven and partly influenced by the low base.

Shibani Kurian, Senior EVP, Senior Fund Manager and Head of Equity Research at Kotak AMC, said consensus estimates suggest that midcaps have been delivering higher earnings growth than large caps over the last few quarters and this trend is expected to continue. She added that Smallcaps remain an area to watch, as their reported growth may be influenced by the low base rather than broad-based earnings strength.

Experts said that within the Small and Midcap space, the strongest growth is likely to come from Midcap IT services, Industrials, Real Estate, Energy and Healthcare, reinforcing the view that earnings momentum is more consistent in the midcap segment.

Mittul Kalawadia, Senior Fund Manager at ICICI Prudential AMC, said overall earnings are on a steady recovery path, with the December quarter expected to show incremental and broad-based improvement. He added that while earnings are recovering, valuations remain elevated and expectations are still high, which limits the scope for positive surprises even if there are short-term rallies.

In terms of positioning in 2026 across large, mid and small caps, the experts preference remains for Largecaps and Midcaps, while Smallcaps continue to be underweight. Experts said Midcap earnings have been stronger and more stable, while Largecap valuations are in line with long-term history. Although Midcap valuations are at a slight premium to their long-term averages, their stronger earnings trajectory is creating opportunities as earnings improve.

Currently, the Nifty is trading at 20x one-year forward price earnings, compared with its 10-year average of 19x, while the BSE MidCap and SmallCap indices are trading at 25x and 21.7x respectively, versus their long-term average forward price earnings of 23.9x and 19.62x.

Few experts added that for Smallcaps, earnings delivery needs to be watched closely, as valuations remain elevated and at a significant premium to long-term historical averages.