Largecap vs midcap vs smallcap: Which segment should you bet on post Q1 results?

The June quarter earnings season for India Inc. largely met expectations, with analysts describing it as a “crossover quarter,” a transition from the subdued, low single-digit earnings growth of FY25 to a more sustainable double-digit growth trajectory.

For Nifty50 companies, Q1FY26 marked the fifth consecutive quarter of single-digit profit after tax (PAT) growth, but with a notable improvement. Aggregate PAT rose 8% YoY, beating analyst expectations of 4–5%. The severity of earnings cuts also moderated compared to previous quarters, even though the trend of downgrades persisted.

Looking ahead, analysts expect earnings momentum to accelerate on the back of easing inflation, stronger liquidity conditions, an above-normal monsoon, and potential demand revival if the government’s proposed GST rate cuts are implemented.

Midcaps shine, large-caps steady, small-caps struggle

Among the three market segments, midcaps once again stood out. According to Motilal Oswal, the 92 midcap companies under its coverage delivered 24% YoY earnings growth in Q1, exceeding its estimate of 20%. Seventeen of 22 midcap sectors posted double-digit PAT growth, extending their strong run for the third straight quarter.

While 87 large caps under its coverage universe posted 10% YoY earnings growth, in line with expectations, and extended their impressive streak of 20 consecutive quarters of profit growth.

Multiple large-cap sectors clocked impressive growth, with 16 of 19 sectors under its coverage delivering a PAT growth. Oil & Gas, Telecom, Private Banks, NBFC - Lending, and Technology were the key drivers of performance, which contributed 77% to the incremental YoY accretion in earnings.

In sharp contrast, small-caps continued to underperform. Across 132 companies tracked by the brokerage, earnings fell 11% YoY against expectations of flat growth, with 46% of firms missing estimates. Weakness was most visible in private banks, NBFCs, insurance, oil & gas, and automobiles.

JM Financial, in its latest report, also stated that the proportion of earnings misses was highest in small-caps, followed by large-caps, and then mid-caps. Specifically, 43% of small-cap companies missed expectations, compared to 28% in midcaps and 29% in large caps, said the brokerage.

Outlook: Large caps stable, mid-caps gaining favour

Motilal Oswal expects EPS growth for Nifty50 to rise to 9% in FY26, compared to just 1% in FY25, supported by a more favourable macro backdrop. Despite recent volatility triggered by tariff concerns, it believes the domestic earnings outlook and reasonable valuations should support modest market gains.

Valuations remain near historical averages, with the Nifty trading at 22.2x FY26E earnings versus its long-period average of 20.7x. Motilal Oswal continues to maintain a bias toward large caps (70% weight) but has also turned more constructive on mid-caps (22% vs. 16% earlier) owing to their superior earnings delivery and improving growth prospects.

From a sector perspective, the brokerage remains overweight on BFSI, consumer discretionary, industrials, healthcare, and telecom, while staying underweight on oil & gas, cement, real estate, and metals.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.