Small & Midcaps Outlook In 2025: Why Earnings Growth Is Crucial For Recovery And Returns?

After an impressive 23-24% return in 2024, small-cap and midcap investors are facing disappointment due to sharp price corrections in the last quarter. How does 2025 look for this dynamic segment? Jyotivardhan Jaipuria, Founder & MD of Valentis Advisors speaks to BTTV's Shailendra Bhatnagar and Sakhi Batra on the outlook of Mid & Smallcaps in 2025. He breaks down the challenges and opportunities in the small-cap and midcap universe for the year ahead. With a tempered return outlook, Jyotivardhan Jaipuria provides valuable insights into navigating valuations, earnings recovery, and active management in this space.

Key Takeaways from Jyotivardhan Jaipuria’s Discussion:

1. 2024 vs. Expectations: Despite predictions of underperformance, small caps and midcaps outshone large caps in 2024, but valuations remain high heading into 2025.
2. Tempered Return Expectations: Anticipates single-digit returns across small, mid, and large caps in 2025 due to valuation pressures and slower stock price growth.
3. Earnings Cycle is Key: Recovery in the economy and earnings will determine performance, with small and midcaps being more sensitive to earnings growth trends.
4. Focus on Alpha Creation: Active managers must uncover compelling small-cap ideas in a vast universe of 800+ stocks, even as broad indices may lag.
5. Valuation Compression Opportunity: Earnings growth of 15-20% could outpace stock price growth, leading to better valuation alignment by the year’s end.  

Jyotivardhan Jaipuria also highlights how active management and alpha generation will play a crucial role in a challenging yet promising market environment.