Midcap, smallcap stocks offer fresh value as earnings support revival, says Devang Mehta
Mehta's comments on the midcap and small cap stocks come at a time when the BSE large cap index is down 4.17% in 2026.
- Jul 4, 2026,
- Updated Jul 4, 2026 3:00 PM IST
Mid cap and small cap stocks may be entering a more compelling phase in the second half of the year, with valuations turning more reasonable after a long correction and earnings still holding up, according to Devang Mehta, Deputy MD and CIO for Equity at Spark Capital Private Wealth.
His core argument: the recent recovery in the broader market is not merely a liquidity chase, but increasingly rooted in fundamentals.
Mehta's comments on the midcap and small cap stocks come at a time when the BSE large cap index is down 4.17% in 2026. On the other hand, Nifty small cap 100 index has gained 8.25% this year and Nifty midcap 100 index is up 2.82% during the same period.
Not just a sentiment bounce
In an exclusive interview trio BTTV, Mehta pushed back against the view that the rebound in the broader market is purely momentum-driven. “Partially it is liquidity driven, but partially it is earnings driven,” he said, arguing that investors may be underestimating how much underlying profit growth has improved the risk-reward equation in the segment.
That distinction matters. If the rally were only driven by flows, sustainability would remain questionable. But if earnings are doing part of the heavy lifting, the case for selective exposure to mid- and small-caps becomes stronger, especially after a long period of underperformance.
Three corrections, one reset
Mehta framed the broader-market reset through what he called three phases of correction: “The first is the price correction, which was a carnage. The second was a valuation correction, and third was a time correction.” In his view, the time correction — stretching roughly one to one-and-a-half years, and in the broader market context even longer — has been particularly significant.
That extended consolidation has allowed earnings to catch up while stock prices remained subdued. The result, he suggested, is that “the margin of safety for mid and small caps is enough and more,” a notable shift from the froth that had worried investors earlier.
Beyond the Nifty heavyweights
A key part of Mehta’s thesis is that benchmark indices still do not fully capture the breadth of India’s opportunity set. Nifty representation remains concentrated in banks, IT, oil and gas, FMCG, metals and some capital goods. But many niche industries with meaningful market size remain populated by listed companies outside the benchmark universe.
That creates room for stock-pickers. Mehta noted that while foreign institutional investors have been associated with exits from large-caps, there have also been cases where they have raised stakes in select mid- and small-cap names. That, he implied, weakens the assumption that foreign money will only return to index heavyweights.
What investors should watch
The message is not to buy the entire segment indiscriminately. Mehta cautioned against “painting] everything with the same brush,” underscoring the need for selectivity. Still, for investors willing to absorb volatility, his stance is clear: “If somebody’s focused for the next three, five years and afford a little bit of drawdowns, I think mid and small is looking very attractive.”
That view also fits into his broader market reading that domestic participation, easing macro headwinds and stronger earnings pockets are reshaping leadership on Dalal Street. For now, the broader market’s comeback appears to be earning its credibility.
Mid cap and small cap stocks may be entering a more compelling phase in the second half of the year, with valuations turning more reasonable after a long correction and earnings still holding up, according to Devang Mehta, Deputy MD and CIO for Equity at Spark Capital Private Wealth.
His core argument: the recent recovery in the broader market is not merely a liquidity chase, but increasingly rooted in fundamentals.
Mehta's comments on the midcap and small cap stocks come at a time when the BSE large cap index is down 4.17% in 2026. On the other hand, Nifty small cap 100 index has gained 8.25% this year and Nifty midcap 100 index is up 2.82% during the same period.
Not just a sentiment bounce
In an exclusive interview trio BTTV, Mehta pushed back against the view that the rebound in the broader market is purely momentum-driven. “Partially it is liquidity driven, but partially it is earnings driven,” he said, arguing that investors may be underestimating how much underlying profit growth has improved the risk-reward equation in the segment.
That distinction matters. If the rally were only driven by flows, sustainability would remain questionable. But if earnings are doing part of the heavy lifting, the case for selective exposure to mid- and small-caps becomes stronger, especially after a long period of underperformance.
Three corrections, one reset
Mehta framed the broader-market reset through what he called three phases of correction: “The first is the price correction, which was a carnage. The second was a valuation correction, and third was a time correction.” In his view, the time correction — stretching roughly one to one-and-a-half years, and in the broader market context even longer — has been particularly significant.
That extended consolidation has allowed earnings to catch up while stock prices remained subdued. The result, he suggested, is that “the margin of safety for mid and small caps is enough and more,” a notable shift from the froth that had worried investors earlier.
Beyond the Nifty heavyweights
A key part of Mehta’s thesis is that benchmark indices still do not fully capture the breadth of India’s opportunity set. Nifty representation remains concentrated in banks, IT, oil and gas, FMCG, metals and some capital goods. But many niche industries with meaningful market size remain populated by listed companies outside the benchmark universe.
That creates room for stock-pickers. Mehta noted that while foreign institutional investors have been associated with exits from large-caps, there have also been cases where they have raised stakes in select mid- and small-cap names. That, he implied, weakens the assumption that foreign money will only return to index heavyweights.
What investors should watch
The message is not to buy the entire segment indiscriminately. Mehta cautioned against “painting] everything with the same brush,” underscoring the need for selectivity. Still, for investors willing to absorb volatility, his stance is clear: “If somebody’s focused for the next three, five years and afford a little bit of drawdowns, I think mid and small is looking very attractive.”
That view also fits into his broader market reading that domestic participation, easing macro headwinds and stronger earnings pockets are reshaping leadership on Dalal Street. For now, the broader market’s comeback appears to be earning its credibility.