Strong earnings propel mid- and small-cap stocks to a significant rally on D-St

Mumbai: Mid- and small-cap companies delivered strong earnings performance in the June quarter, posting their sharpest revenue growth in 16 quarters, shrugging off the impact of rising commodity prices, mainly oil, amid West Asia conflict.

Of the sample of 113 companies in the Nifty MidCap 150 index, aggregate revenue in April-June climbed 20%, its biggest jump since June 2022, from the same period a year ago. Operating profit rose 27%, extending its streak of double-digit growth to 13 quarters, according to Capitaline data. Aggregate net profit surged 23% year on year, marking the second consecutive quarter of double-digit growth.

Total costs increased 17.2% year on year, the sharpest rise in 14 quarters.

The smallcap segment recorded an even stronger performance. Of the sample of 213 companies in the Nifty SmallCap 250 index, aggregate net profit surged 42.5%, its biggest jump in six quarters. Revenue rose 19.3%, its strongest growth in 14 quarters, while operating profit increased 27.5%, its biggest jump in five quarters. Total costs rose 18%, the sharpest increase in 13 quarters.

“A favourable base has certainly helped smallcaps,” said Siddhartha Khemka, head of research, Wealth Management, Motilal Oswal Financial Services. “The June-quarter numbers represent a combination of favourable base effects, revenue growth, operating leverage, improving margins and some low-base and loss-to-profit benefits.”

The sample for both indices excludes banking, financial services, insurance, and oil and gas companies. Vodafone Idea has also been excluded from the small-cap index as it reported a large one-time gain in the March 2026 quarter.
The better-than-anticipated results fuelled the run-up in the mid-cap and small-cap stocks. The Nifty MidCap 150 and Nifty SmallCap 250 gained 17% and 24.5%, respectively. In comparison, the Sensex gained nearly 6.3% during the quarter, while the Nifty advanced 6.8%.
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Within midcaps, metals, technology, pharma and select companies were among the stronger contributors, while in smallcaps, chemicals, metals, building materials, auto and select industrial and consumer-facing businesses led the earnings growth.

Market participants said the earnings growth is supporting the elevated valuations of mid-cap and small-cap stocks. “Given the valuation levels, investors may need a longer horizon to allow that earnings potential to play out,” said Harshad Borawake, Head of Research & Fund Manager, Mirae Asset Mutual Fund. “Our approach, therefore, is to stay bottomup — backing individual ideas on their merits rather than making a top-down call on the index or any one sector.”

The Nifty’s current estimated Price to Earnings (PE) ratio is at 22 times, compared with its 10-year average of 23.5 times. The Nifty MidCap 150’s PE ratio based on reported earnings stood at 33 times, against its five-year average of 34, while the Nifty SmallCap 250’s stood at 32 times, above its five-year average of 29 times.