Smallcap, midcap stocks give 85 multibaggers but pro investors are betting elsewhere

India’s smallcap and midcap universe has produced 85 multibaggers this year, with one stock surging more than 1,600%. Yet professional investors are increasingly directing fresh money toward largecaps, warning that the broader market’s spectacular run has left valuations stretched and the risk-reward less compelling.

A screen of companies with market capitalisation above ₹1,000 crore showed that 85 stocks had more than doubled in 2026 with 21 of them rising more than 200%, according to data from ACE Equity.

Mrugesh Trading was the biggest winner, surging 1,648%, followed by Sterlite Technologies with a 768% gain and Axis Solution with a 577% rise. Sigma Advanced Systems, Bliss GVS Pharma and Ind-Swift Laboratories also gained more than 300%.


The gains have come even as the Nifty has declined 11.5% so far in calendar 2026. The Nifty Smallcap 250 Index has risen 7%, while the Nifty Midcap 150 Index is broadly flat, underscoring the sharp dispersion between individual winners and the broader benchmarks.

The multibagger list is also tilted toward smaller companies. Sixty of the 85 stocks had market capitalisations below ₹10,000 crore, based on the data. That makes the performance impressive, but also highlights why fund managers are becoming more selective after two to three years of strong outperformance by the broader market.

“At this point, we have a clear preference for largecaps,” Srinivas Rao Ravuri, chief investment officer at Bajaj Life, told ET Markets.

“The performance divergence has become quite extreme, with the Nifty 50 up only around 5% since the beginning of this financial year, compared to sharp gains of roughly 18% in mid-caps and 31% in small-caps,” he said.

Also Read |Nifty’s next rally needs two battered warhorses to wake up. Which one will revive first?

The broader-market rally has been supported by stronger earnings growth, but multiple expansion has also played a role, Ravuri said. The Nifty 50 is now trading close to its long-term average one-year forward price-to-earnings ratio, while mid- and small-caps are trading at premiums of about 25% to 50% to their respective long-term averages.

“We do expect strong earnings growth from the broader market, but we think a lot of that is already reflected in valuations,” he said. “So, for incremental money today, we find the risk-reward much more attractive in large-caps.”

The shift is not a call to abandon smaller companies altogether. Axis Mutual Fund said large-caps offer a more balanced risk-reward profile, supported by reasonable valuations, stronger earnings visibility and healthy balance sheets.

“While pockets of the mid- and small-cap universe continue to trade at rich valuations despite recent corrections, large caps offer a relatively more balanced risk-reward profile,” the fund said in a note.

Axis also said it did not view the market as a large-cap-only opportunity. Investors can still find opportunities across market segments, but the focus should be on businesses with sustainable earnings growth, durable competitive advantages and reasonable valuations, while maintaining diversification across large-, mid- and small-caps.

BofA Securities has also reversed its earlier preference for smaller companies. The brokerage’s India MD and Head of Research Amish Shah said the valuation premium of the small- and midcap indices over the Nifty has narrowed to 43% from a peak of 53%, after the two segments outperformed the Nifty by 13% to 20% year-to-date.

“Although we continue to see select opportunities within SMID caps, we reverse our preference for SMIDs and suggest switching to large caps,” Shah said, adding that investors would need to remain nimble to generate outperformance.

BofA is constructive on the Nifty after two years of caution and sees potential for the index to reach 26,200 by December 2026, implying about 12% upside in its base case. The firm said five of the eight risks it had earlier identified had either played out or been priced in.

The remaining risks include Federal Reserve rate hikes and India’s lumpy primary market issuances, which BofA believes could peak by October 2026 and create room for a potential Nifty rally from November.

Several high frequency macro indicators point to a robust economy, while BofA’s economics team has upgraded its macro forecasts. After 230 basis points of consensus earnings cuts for FY27 so far this year, the firm believes earnings downgrades have peaked. It expects Nifty earnings growth of 10% and 15% in FY27 and FY28, respectively, compared with the Street’s estimates of 12% and 15%.

Also Read |Vijay Kedia reveals multibagger playbook: How the superstar picks stocks using RISE strategy

Nuvama Institutional Equities is also advocating what it calls a contrarian shift toward large-caps. The brokerage said the lacklustre performance of large-caps over the past five years, at roughly 6% annually, had resulted in unprecedented underperformance relative to small- and midcaps and a significant reduction in their valuation premiums.

But it cautioned against making a structural case against large-caps.

“These extremes play through in cycles and we might be in the middle of one,” Nuvama said, noting that the trend was exactly the opposite in 2019, when small- and midcaps suffered significant underperformance.

Nuvama’s preferred areas include large-caps and defensive sectors. Within large-caps, it favours information technology because of valuations and the potential benefits from AI applications, private banks because of deep value, consumer companies through bottom-up ideas, pharmaceuticals, cement, chemicals that could benefit from rupee depreciation and internet companies with growth potential.

It remains underweight on small- and midcaps as well as several cyclical sectors. Industrials face high valuations and margin risks, metals are vulnerable to high valuations and a hawkish Federal Reserve, and power stocks face high valuations and demand-slowdown risks. Nuvama also remains cautious on public-sector banks because of peaking return on equity and on autos because of fading GST-cut benefits and margin headwinds.

For now, the message from fund managers is clear: the smallcap and midcap rally has not eliminated opportunities, but the burden of proof has risen. With large-caps offering stronger earnings visibility and a more reasonable valuation profile, the next phase of market outperformance may come from the segment that investors have spent the past several years overlooking.

(Data: Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)