Indian mid- and small-cap stock indexes beat the Nifty 50 in the year through September, but their higher valuations leave investors weighing which companies can turn industrial expansion into sustained earnings.
NSE Indices put total returns for the year ended Sept. 30 at 4.57% for the Nifty Midcap 150 and 7.23% for the Nifty Smallcap 250. The Nifty 50 lost 7.09% on the same basis. At the Sept. 30 close, the three indexes had price-to-earnings ratios of 28.40, 34.45 and 19.36, respectively.
Paresh Bhagat, chairman of Mangal Keshav Financial Services, told The Economic Times in an Oct. 21 interview that valuations for some mid- and small-cap businesses already reflect expectations of strong growth. Those companies must deliver consistent earnings to justify their prices, he said. His warning concerns individual businesses, while the exchange figures measure broad indexes.
India's Ministry of Electronics and Information Technology (MeitY) reported electronics production of ₹13.11 trillion in fiscal 2025-26, up 15.8% from the previous fiscal year. That industrywide figure does not show how much growth reached the specialized suppliers Bhagat discussed.
The Press Information Bureau said the government's Production Linked Incentive schemes, which reward increased production and sales across 14 sectors, had drawn ₹2.6 trillion in investment by June 2026. Separately, the Ministry of Power (MoP) reported that India's transmission network measured 509,000 circuit kilometers in June 2026. The ministry plans to expand it to 648,000 circuit kilometers by 2032.
Bhagat identified precision engineering, electronics, industrial automation, power transmission and energy storage as areas where suppliers of critical components or equipment may benefit. He linked the opportunity to localization, import substitution and supply-chain diversification, and pointed to Taiwan and South Korea's semiconductor and AI investment cycle as a precedent. He did not identify companies likely to emerge as leaders.
Bhagat cited competitive strength, returns on capital, cash flow and valuation as measures of an individual business. He warned that a company's profits could rise without comparable share gains if investors become less willing to pay a high earnings multiple. Future company earnings, valuations and foreign institutional selling are among the indicators he said would help determine whether larger stocks regain market leadership.
