Mid- and Small-Cap Firms Poised to Outperform Large-Caps in Q2 FY26

Analysts expect mid- and small-cap companies to report stronger earnings growth in the September quarter, surpassing large-cap peers, even as overall sales growth remains relatively stable. Profit after tax (PAT) for small-caps is projected to rise 30% year-on-year, followed by mid-caps at 16% and large-caps at 11%. Sales across all three categories are forecasted to increase between 6 and 8%, while EBITDA growth is expected in the range of 3 to 13%.

Large-cap firms may record modest growth, supported by commodity-linked sectors and the automobile industry. In contrast, mid- and small-cap companies are anticipated to see sharper profit expansion, driven by margin improvements, rising demand, and the low base effect from the previous year.

Sector-Wise Growth Drivers

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For mid-caps, profit growth is expected to be broad-based, led by core sectors such as construction materials, real estate, information technology (IT), energy, and financials. Analysts noted that real estate continues to benefit from healthy pre-sales and improved operating efficiency. Materials and speciality chemicals are supported by restocking and stronger realisations, while IT companies gain from new contract wins and tighter cost controls. Select non-banking finance companies are also expected to contribute significantly to earnings growth in the financial sector.

Small-cap companies are likely to deliver the highest earnings momentum, aided by cyclical recovery and improving consumption trends. Manufacturing, housing-related industries, and consumer discretionary segments are projected to record meaningful margin gains, reflecting better capacity utilisation and stronger balance sheets.

For large-cap firms, earnings growth is expected to remain steady, primarily supported by metals, energy, and automobiles. Analysts caution that easing input costs and demand normalisation could be partially offset by muted performance in banking, IT, and consumer staples, where margins and volumes remain under pressure.

Market and Macro View

In recent months, local positives like soft inflation, reduced interest rates, tax relief, a robust monsoon, and adequate banking liquidity have counterbalanced global worries like slower growth and trade tensions, which have caused equity markets to trade in a limited range.

Analysts believe that while the September quarter may remain relatively soft, the second half of FY26 could see stronger momentum supported by these tailwinds. Any resolution on US trade tariffs, coupled with improving corporate earnings, may encourage foreign portfolio inflows — currently among the weakest in emerging markets — providing a potential boost to market sentiment.

Conclusion

In summary, mid- and small-cap companies are poised to outperform large-caps in Q2 FY26, with higher earnings growth driven by strong sectoral performance and improving domestic demand. Large-cap firms are expected to maintain stable gains, while broader macroeconomic tailwinds could strengthen investor confidence in the coming quarters.