Large-cap Dominance: Analyzing the Growing Polarization in Indian Equity Markets

The disparity between large-cap companies and broader markets in India persists due to weak earnings, as highlighted in an SBI Mutual Fund report. Large caps remain undervalued, leading to an intensified market polarization, with most gains sourced from select large-cap stocks while broader markets underperform.

In the Indian stock market, a pronounced gap between large-cap companies and other market segments appears set to widen, according to a report from SBI Mutual Fund. The report cites weak earnings and relative valuations favoring large caps as primary factors contributing to this ongoing divergence.

Large-cap stocks have led market gains this year, while a significant number of mid-cap and small-cap stocks have lagged, failing to match the benchmark indices' performance. Despite the Nifty and Sensex posting returns of 12.4% and 11.2%, respectively, the Nifty Midcap 150 and Nifty Smallcap 250 have substantially underperformed, highlighting the widespread underperformance within the broader market.

Earnings season trends echo this narrative, with robust profit growth confined to select sectors such as metals, NBFCs, and telecom. In contrast, sectors like private banking and Oil & Gas are experiencing pressures that hinder overall profitability. Globally, India has underperformed due to high starting valuations, as seen by the MSCI India's modest 3.6% gain, compared to stronger performances from other emerging markets.

(With inputs from agencies.)