According to JM Financial, smallcaps recorded the highest proportion of earnings misses in Q4FY25—31% of companies underperformed expectations, compared to 28% in midcaps and just 17% in largecaps. Out of 143 smallcaps tracked, 45 missed estimates while only 32 met them.
The message from Motilal Oswal Financial Services (MOFSL) was even more blunt: “The smallcap segment has been a laggard, recording not only weaker-than-expected numbers but also a notable aggregate PAT decline of 16% YoY.”
Sales were up 5%, but EBITDA dropped 6% and PBT plummeted 22%. The pain points? Smallcap financials and retail took a heavy beating.
In the NBFC-lending segment, earnings collapsed by a massive 68% YoY, driven by weak revenue and poor asset quality—especially among microfinance institutions. This one segment alone accounted for over 92% of the total PAT decline in the smallcap universe.
Even smallcap private banks and insurers weren’t spared. Private banks posted a 21% drop in profits, while insurers like Star Health reported operating losses and a token PAT—down 100% YoY.Also read | Neither largecaps, nor smallcaps! India Inc’s Q4 result season belongs to the middle order
Retail names in the smallcap space saw a 34% fall in profits, dragged by soft demand and restaurant chains slipping into losses—unlike their mid and largecap counterparts that delivered growth.
Autos (-23% PAT), Oil & Gas (-51%), and even Tech (-1%) added to the misery. Consumer names posted just 7% PAT growth, while Cement was flat at 3%, Motilal said.
And yet, there were pockets of strength. Capital Goods stood out with 49% YoY PAT growth, beating both mid and large peers. Chemicals rebounded with 36% profit growth. Other stars included Consumer Durables (+64%), EMS (+52%), Staffing (+61%), and Real Estate (+37%).
Still, the broader picture remains one of caution.
“Mid and smallcap stocks where growth is faltering but valuations are still high are in the penalty box,” said Trideep Bhattacharya, CIO – Equities, Edelweiss Mutual Fund. “At the end of the day, we are bottom-up stock pickers and we are fine with largecap valuations. Within mid and smallcaps, we advise selectivity as a strategy in the sense that wherever there is a valuation premium, we make sure that there is an earnings growth premium that comes along with it.”
Bhattacharya added that small and midcaps are currently trading 17–25% above their 10-year average valuations—unjustified unless backed by performance.
Krishna Appala, Fund Manager at Capitalmind PMS, echoed this view: “Largecaps currently offer a better balance of earnings visibility and valuation comfort. The current environment rewards discipline and fundamentals over broad-based exposure—especially when smallcap multiples leave little room for error.”
The takeaway: Smallcaps may be in vogue, but the Q4 scorecard shows that the rally isn’t built on solid ground—at least not yet.
Also read | Raamdeo Agrawal reveals his simple 2-step formula for finding multibagger stocks
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
By
