The divergence suggests that the broader-market selloff is not over. But it also raises a more constructive possibility that largecaps are beginning to stabilise first, potentially laying the foundation for a wider market recovery.
The shift reflects a combination of valuation, liquidity and earnings visibility. Investors who crowded into mid- and smallcaps are now reassessing the risk-reward equation, while largecaps are benefiting from more reasonable valuations and stronger institutional preference.
“Mid- and smallcap indices were trading at a premium valuation, even accounting for their higher growth expectations, while largecaps were already at reasonable valuations for the growth expectations from them,” Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital, told ET Markets.