Time to buy SMIDs? Analysts eye valuation comfort, India-US deal fine print

After months of being battered by global headwinds and punitive tariffs, the small-and-midcap (SMID) segment is likely entering a "sweet spot" with the finalisation of the India-US trade deal. Moreover, with their valuations turning attractive, analysts believe the stage is set for a significant re-rating in these stocks, potentially making the next fiscal year (FY27) a defining period for smallcap and midcap stocks.

 

Before the announcement of the India-US trade deal, the Nifty MidCap 100 had fallen 3.4 per cent in January 2026, while the Nifty SmallCap 100 slipped 4.7 per cent. This came against a 3.1 per cent drop in the Nifty50 index.

 

 

The decline came after a 5.7 per cent advance in the midcap index and 5.6 per cent fall in small cap index in the previous calendar year.

 

This crackdown in SMIDs, analysts said, has effectively flushed out "froth" from the broader markets, making risk-reward favourable for smaller companies.

 

"A re-rating is expected in the sectors that were battered by the imposition of US tariffs," noted independent market analyst Ambareesh Baliga. The reduction in US tariffs, from 50 per cent to 18 per cent, will particularly benefit small companies because many US-linked sectors -- such as auto ancillaries, chemicals, and textiles -- reside within this segment.

 

"Once the fine print comes, we could see some sort of move in the small-cap space, where valuations have become quite cheap. Since most of the US-linked sectors are in that segment, they should perform better," Baliga said.  ALSO READ | What next for Nifty after 1,769-pt volatile ride in 3 days? Chart says this

Valuation comfort to draw FIIs

Analysts also believe that valuations of the SMIDs segment is now justified, which may lure foreign institutional investors (FIIs) to return to Indian shores, seeking growth in underpenetrated segments. Foreign institutional investors bought Indian shares worth ₹5,236.28 crore on February 3, a day after the Indo-US trade deal was signed. They bought stocks worth ₹29.79 crore on Wednesday.

 

Notably, the Nifty MidCap 100 is trading at a trailing twelve-month (TTM) price-to-moving (P/E) average of 34.6x as compared to a 5-year average of 35.7x and a 10-year average of 40.1x, as per Bloomberg data.

 

Similarly, the Nifty SmallCap 100 is trading at a TTM P/E of 29.7x, slightly higher than its 5-year average of 27.5x, but meaningfully lower than its 10-year average of 99x.

 

By comparison, the Nifty50's TTM P/E average stands at 23.4x, compared to a 5-year average of 23.9x and a 10-year average of 27.4x.

FY27: The year of the SMIDs?

Looking ahead, G. Chokkalingam, founder and chief investment officer (CIO) of Equinomics Research, believes that FY27 will be the year of SMIDs. A combination of attractive entry points, diminishing global volatility, and a growing number of retail investors seeking quality opportunities, he added, creates a "perfect storm" for a recovery.

 

Echoing similar views, Abhinav Tiwari, research analyst, Bonanza, said tariff relief has improved the outlook for SMIDs by boosting export prospects, stabilising global trade relations, and supporting an earnings recovery.

 

"Given their relatively higher export orientation, this pack is now well-positioned to benefit from policy stability, renewed investor confidence, and a faster growth trajectory," he said.

 

As a strategy, Tiwari believes SMIDs can be accumulated selectively on dips, particularly in resilient sectors. Investors, he advised, could diversify portfolios while closely monitoring volatility arising from global cues.

 

JM Financial Institutional Equities expected sectors like electronics, diamonds and jewellery, textiles, machinery, chemicals, and automobiles to benefit the most from the reduction in US tariffs.

 

"Oil and fuel, diamonds and jewellery, machinery, electronics and electricals, medical equipment, aircraft and spacecraft, plastics and chemicals make up the largest share of imports from the US. Besides them, Along agricultural goods (with a current weighted average duty on imports of 35–40 per cent) may see increased competition if India slashes its tariffs to zero on US imports," JM Financial said in a note.

 

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(Disclaimer: The views and investment tips expressed by the analysts in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)