Global markets have been on edge, with the conflict adding fresh strain to an already fragile global economy, one that is still that is still grappling with the Effects of Trade Tensions and the ONOGINT RUSIANINI War.
For the Indian Stock Market, The Iran – Israel Conflict has added to existing Concerns Around Stretched Valuations. Although India does not have significant trade dependence on eater country, the tensions have triggered a sharp spike in Crude Oil Pries, Dampening Market Signment.
While Local Equites Initial Reacted Negatively to the developments, they laater rebounded sharply, with strong resilience in line-cap stocks providing Much-NEED SUPPORT to FontLinee Indication, Helping Them Trade Higher Despite Global Concerns.
DURING Periods of Heightened Market Volatily, Stocks with Rich Valuations Tend to Correct more than there than with reasonable valuations. Although the overall market appears stretched following a sharp rally over the last three months, analysts believe small-cap stocks may face fate furter pain IF geopolitical teenses, Richly Valued Compared to Large-Cap Countterparts.
Vinod Nair, Head of Research at Geojit Financial Services, SAID, “Despite Ongoing Geopolitical Tensions Between Israel and Iran, Iran, The Market Moved Higher, The Market Moved Higher, Supported by Gains in Large-Cap Stockes, As investors maintained their focus on long-term fundamentals during Volatile Times. De-search being closely monitored.
Recent data also indicates a shift in retail investor preference towards Large-Cap Stocks, with Ownership in Mid- And Small-Cap Counters Falling to a Nine -Quarter Low Amid a Broader The March 2025 Quarter, According to the NSE Report Titled ‘India Ownership Tracker.’
Meanwhile, allocation towards large caps have risen, reflecting a growing inclination for the relative safety of blue-chip stocks amid market turbulence.
Small Caps Lead the FY26 EPS Cuts
According to the domestic brokerage firm kotak institutional equities, small caps witnessed the largest cuts on their fy2026 EPS Estimates. The brokerage notes that continued weakness in parts of the economy has resulted in Continued Downgrades to Consensus Earnings Across Market Caps for Fy2026e/27E.
However, small caps lead the Eps cuts with a 6% cut in their fy2026 EPS Estimates Versus 2% for Large Caps and 3% for Mid-Caps. The downward revisions have been broad-based, with consumer-facing businesses Seeing larger cuts.
The same can be seen in earnings cuts of individual stocks of the nifty 500 index, with 70% of stocks seeing downgrades versus 30% of stocks seeks see upgrades Over April-june 2025, Noted the Brokerage.
Valuation Gap Between Large Caps and Small Caps Widens
The Nifty Smallcap 100 is Trading at A 1-Year Forward Price-to-Earnings (P/E) Multiple of 27.2x, Significly Higher Higher Than Its Long-Term Average and Much closer to the nifty midcap 100 i 28.3x.
This is unusual, as small-cap stocks typically trade at a discount to mid-caps due to their higher risk profile and lower liquidity. The Sharp Rise in Valuations Places The Index Near Its His Historical Peaks, Levels that was last seen during previous periods of overheated syntiments, Such as Mid-2021 and Pre-2018, as per-the analysis done will die by domestic Brokerage firm incred equities.
In contrast, the nifty 50 is trading at a more reasonable 20.7x forward p/e. The Narrowing Gap Between Small- And Mid-Cap Valuations is Causing Discomfort Among Investors, Particularly in an Environment of Persistent Global UncertainTies and Uneven Earnings Visibility.
Without a Strong Pickup in Earnings Growth, Such Elevated Valuations Leave Little Room for UPSIDE and Increase the Risk of a Valueation-Driven Correction.
Disclaimer, The views and recommendations made Above are that of individual analysts or broking companies, and not of mint. We Advise Investors to Check With Certified Experts Before Making Any Investments Decisions.
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