Boiling over? Small and midcap multiples bubble, but PEG keeps lid on

Surface froth looks intense, yet expected growth tempers risk

Despite trailing the benchmark Nifty 50, small and midcap (SMID) stocks appear pricey on a 12-month forward price-to-earnings (P/E) basis. The Nifty trades at roughly 21x forward earnings, compared with around 28x for both the Nifty Smallcap 100 and Nifty Midcap 100 indices. 

But growth-adjusted valuations tell a different story.

 

On a P/E-to-growth (PEG) basis, the broader market looks more reasonably priced. Goldman Sachs reports that the Nifty Smallcap 100 trades at a PEG of 1.3x and the Nifty Midcap 100 at 1.1x, compared with 1.5x for the Nifty 50.

 

“India’s high valuation has long been a primary investor concern.