Nuvama says small-, mid-cap stocks valuation expensive, further fall likely
This story was originally published at 19:27 IST on 21 April 2026
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MUMBAI – Nuvama Institutional Equities finds valuations of small-cap and mid-cap stocks still "expensive", after being range-bound over the last two years and has asked the Street to brace for a longer period of correction unless there is a sharp fall in interest rates or revival of earnings in a V-shaped manner. While the BSE Smallcap 400 and BSE Midcap 400 indices have bounced back to levels seen before the US-Iran was started despite uncertainties on oil supply, Nuvama does not see the indices to rise sharply from these levels.
The broking firm highlighted that the valuation of small- and-mid cap stocks are one standard deviation higher across metrics even now, hence, making it difficult for them to breakout from current levels. "Expect SMIDs (small-and mid-cap stocks) to be range bound until fresh stimulus arrives or valuations turn cheap," Nuvama said. "We find attractive bottoms up ideas, especially in consumption and exports," it added.
Nuvama expects West Asia war to "certainly" cause disruption in earnings in the near term. Additionally, dovish stance of US Federal Reserve and Reserve Bank of India and sustained flows from domestic invetsors, even beyond mutual funds are a "saving grace", the broking firm said. From a demand perspective, recovery in small- and mid-cap space was led by capital expenditure post 2022. Currently, Nuvama expects "consumption" trend to outpace capex, given the higher policy support in the former theme. Once, there is normalisation in supply side, Nuvama sees even exports to do better given the "currency tailwainds."
As a base case, Nuvama does not see the related supply shock induced by war in West Asia to last long, saying there should be a truce soon or alternative fuel sources would be procured, as seen during the times of Russia-Ukraine war. Nonetheless, 2026-27 (Apr-Mar) will certainly see pressure in margins similar to that seen during the previous oil shocks of Russia-Ukraine war and Arab spring, Nuvama said.
A resumption of growth in earnings per share of the mid- and small-cap space after the "supply shock" will likely be muted as there is an absence of a large policy stimulus from the government as seen in 2020 or a pent-up demand, Nuvama said. The slow growth in income of households as well as low credit growth in the micro, small, and medium enterprises segment poses a risk for strong growth outlook for the coming years. The consensus in the Street is that the mid- and small-cap companies are in for an annual growth of 22% predicted for years between FY26 and FY28 as against 12% growth in FY24 to FY26, Nuvama said. Thus, the earnings downgrade in small- and mid-cap stocks is expected to continue in the near term, Nuvama said. End
Reported by Gopika Balasubramanium
Edited by Akul Nishant Akhoury
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