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DSP MF sees outperformance in small, midcaps; says largecap valuations not cheap

Experts say small and midcap stocks outperform once they move out of deep phases of underperformance. The first off the block could be smallcaps, followed by midcaps.

December 06, 2022 / 06:12 PM IST

Smallcap and midcap stocks may outperform largecaps going ahead as this segment of the market is priced more attractively on a relative valuation basis, according to a report by DSP Mutual Fund.

The Nifty index is trading at 22 times trailing earnings, while the Nifty Midcap 100 Index is trading at 23 times and the Nifty Smallcap 250 Index is trading at 20 times.

“Small and midcap (SMID) stocks have underperformed Nifty over the last 16 months. The underperformance versus Nifty halted before reaching prior historical troughs. Historically, small and midcap stocks enter a period of outperformance once they reverse from deep phases of underperformance… this opens the room for relative outperformance for SMID, probably small and then midcaps, in that order,” the fund house said in the note.

Largecaps overvalued