37% smallcap earnings boom lifts Nifty-500 to strongest quarter since FY25

The Nifty-500 delivered 15% YoY PAT growth, the highest in five quarters.

India’s broader markets have taken the earnings lead. The Nifty-500 delivered its strongest earnings growth in five quarters in 2QFY26, powered overwhelmingly by mid- and small-caps, even as large caps lagged, said a report by brokerage Motilal Oswal.

 

 Midcap earnings jumped 27% YoY and small-caps surged 37%, far outpacing the Nifty-100’s muted 10% rise. Sector-wise, the rebound was broad: oil & gas, NBFCs, metals, cement and telecom delivered standout contributions, while autos and private banks weighed on large-cap performance. At the same time, valuations in SMIDs remain elevated, raising questions about sustainability despite their clear earnings momentum.

 

According to Motilal Oswal Financial Services’ latest Nifty-500 Strategy Report for 2QFY26, the broader market delivered its strongest earnings performance in five quarters, even as geopolitical tensions and weak consumption weighed on sentiment.

 

Spotlight is on Small and Mid caps:

 

• Aggregate earnings for the Nifty-500 universe grew 15% year-on-year, with revenue up 8% and EBITDA rising 12%. But the real story lies in the mid- and small-cap buckets.
• Midcap-150 earnings surged 27% YoY, far outperforming large caps.
• Smallcap-250 earnings jumped an even stronger 37% YoY.
• Large caps, in contrast, managed just 10% PAT growth—held back by weak numbers from private banks and the auto sector.

 

Example:

A mid-sized capital goods firm (like those highlighted in the “30% YoY PAT growth” sector cluster) showed double-digit order inflows driven by power T&D and renewables, helping the entire capital goods sector deliver 30% YoY PAT growth. Meanwhile, several large private banks reported flat to negative PAT, dragging down the Nifty-100’s overall performance.

 

Which Sectors Drove the Earnings Beat?

 

Motilal Oswal’s breakdown shows the rally is far from narrow. In fact, 17 of 20 major sectors posted profit growth.

 

Top Contributors to Incremental Earnings:

 

• Oil & Gas: +59% YoY—OMCs alone accounted for 33% of overall incremental earnings.
• NBFCs: +21% YoY, powered by better spreads and lower credit costs.
• Metals: +18% YoY on soft base and improved realizations. 

 

Other sectors delivering standout performance:

 

• Cement: PAT up 211% YoY—the second straight strong quarter.
• Telecom: From a ₹2,000 crore loss in 2QFY25 to a ₹3,200 crore profit in 2QFY26.
• Retail: 32% PAT growth amid strong festive demand.
• Real Estate: 22% PAT growth with healthy pre-sales.

 

Muted or weak performers:

 

• Automobiles: –16% YoY, dominated by a sharp decline in one of the large PV OEMs.
• Private Banks: –3% YoY, despite guidance for NIM improvement in 2HFY26.
• Media: –10% YoY, hurt by ad-spend weakness. 

 

Margins Hold Up Despite Cost Pressures

 

EBITDA margins (ex-BFSI) expanded 120 bps YoY to reach 16.9%.However, excluding commodities, margins compressed by 30 bps—indicating that margin strength is still concentrated in cyclical sectors such as O&G and metals.

 

A Healthy 1HFY26 Despite Mixed Signals

 

For the first half of FY26:

 

• Nifty-500 earnings grew 12% YoY,
• Midcaps delivered 23%,
• Small caps 19%,
• Large caps lagged at 9%. 
• Nearly 46% of Nifty-500 companies reported PAT growth above 15%. Only 14% posted losses or declines greater than 15%

 

Valuations: SMIDs Still Expensive

 

Despite earnings support, mid- and small-cap valuations remain elevated compared to historical averages.

 

As of Nov 2025:

 

• Nifty Midcap-100 P/E: 28.8× vs long-period average of 23.2×
• Nifty Smallcap-100 P/E: 25.8× vs LPA of 16.8×
• Nifty-50 P/E: 21.2×, only slightly above its LPA of 20.8×. 

 

This valuation premium reflects strong liquidity, retail flows, and the perception that India’s next leg of earnings leadership will come from manufacturing, capital goods, real estate, and NBFCs—all SMID-heavy sectors, noted Motilal Oswal.

 

Emerging trends: 

The current earnings picture highlights three trends:

 

1. Leadership Is Shifting Down the Market Cap Curve: Large caps are no longer the dominant earnings engine—despite stronger balance sheets and better liquidity.

 

2. Cyclicals Are Back: Oil & Gas, metals, cement, and capital goods: all delivered outsized earnings contributions this quarter.

 

3. Valuations Need Monitoring: Mid- and small-cap pockets are delivering the strongest earnings—but they are also priced for perfection.