UTI AMC notes rising valuation gap as mid- and smallcap indices trade at premium to large caps
Valuations for India's mid- and smallcap indices have widened significantly compared to the broader market, with V Srivatsa of UTI AMC warning investors about potential momentum issues. The data shows a stark difference in price-to-earnings multiples between sector-specific pockets and large-cap benchmarks.
India's mid- and smallcap indices recently reached fresh record highs. Investors are showing strong interest in specific themes like defence, power equipment, electronic manufacturing services (EMS), aerospace, and artificial intelligence. V Srivatsa, Executive Vice President – Equity at UTI AMC, spoke with Kshitij Anand of ETMarkets about these developments. He noted that valuations are becoming difficult to ignore in this segment. Bloomberg data indicates the Nifty 50 is trading at approximately 21 times earnings. In contrast, the Nifty Midcap and Smallcap indices are valued at roughly 33x and 32x earnings respectively. This creates a valuation gap of nearly 50-57% over large caps. Srivatsa explained that several companies in these high-growth themes are priced for near-perfect execution. He advised investors to look beyond the latest hot theme to distinguish genuine earnings potential from fear of missing out (FOMO) driven momentum. The discussion also covered the risk-reward profile favoring large caps and the impact of higher global rates and foreign institutional investor selling.
