Robust earnings growth, strong liquidity and rising risk appetite have powered India’s small- and mid-cap rally. The next test: whether companies can deliver enough profit growth to justify elevated valuations.
In the second half of FY26, mid- and small-cap companies benefited from goods and services tax (GST) cuts and benign liquidity conditions, while large-caps grappled with softer global demand. Large-caps are also perceived as more vulnerable to foreign institutional investor outflows. Among BSE 500 companies, excluding oil marketing firms, mid-caps posted the strongest profit growth at 21% in FY26, up from 15% a year earlier, followed by small-caps at 11%, compared with 2% in FY25. Large-cap profit growth remained subdued at 7%, according to Nuvama Research.
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