Small- and mid-cap companies often end up at extreme ends of market and economic cycles. This time is no different. While the large-cap Nifty 50 has been hammered down 26% from its highs in mid-February, the Nifty Midcap 100 index has fallen 32%.
But that does not mean that mid-caps are now relatively inexpensive. In fact, the large-caps’ 12-month trailing valuations are about 17.4 times compared to the Nifty Midcap 100’s price-earnings multiples of 18.7 times, shows Bloomberg data.
This suggests that the Nifty Midcap 100 is still slightly overvalued in relation to large-cap stocks. With the lockdown extended by another 19 days, the economic impact on small- and mid-cap companies may be overwhelming.