Large-cap stocks have shown the strongest alignment between price gains and earnings growth over the past year, while mid and small-cap indices, despite recent strong returns, have relied heavily on PE re-ratings rather than actual earnings improvements.
This divergence has raised concerns about potential corrections in mid and small-caps, making large-caps a safer bet for investors.
The Nifty Microcap 250, Midcap 150, NIFTY 100, and Smallcap 250 indices all posted positive returns in the last one month, with the microcap index leading at 6 percent. This strong performance among mid and small-cap stocks occurred despite minimal upgrades in aggregate earnings.
Fisdom Research highlighted that about 70 percent of the returns in these indices over the past year stemmed from PE re-rating rather than actual earnings growth.
Follow our market blog to catch all the live action
Over the past year, the large-cap index has shown the highest EPS growth, with prices aligning closely with earnings. This indicates that while price gains have been modest, strong earnings growth could drive future valuation expansion.
In contrast, mid-cap and small-cap stocks have seen the greatest valuation expansion with the lowest earnings growth. If Q1 FY25 earnings fail to justify these valuations, a correction may be seen.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
