Midcap stocks have outperformed largecap stocks in 2017 so far. They are likely to retain their lead since their earnings growth relative to their larger counterparts is much stronger. For instance, Bloomberg's consensus estimated growth for the Nifty Midcap 50 companies for 2017-2019 is 52 per cent compared with less than 50 per cent growth for the Nifty 50 companies. The difference is reflected in the valuation multiples of the two indices: the Nifty 50 trades at 14.1 times FY19 earnings, while Nifty Midcap 50 index is at 16.8 times the forward earnings.
In addition, the midcap index's composition of more of domestically focused companies compared with the Nifty 50 companies offers higher earnings growth visibility and will help sustain the higher valuations.
