Midcaps set to outperform despite valuation premium as earnings momentum strengthens: Alok Agarwal

ETMarkets.com RelatedSensex target for 2026 at 107,000? Morgan Stanley makes big predictionIndia’s earnings cycle turns the corner; double-digit growth expected in H2: Jyotivardhan JaipuriaFIIs return to India; early signs of a real recovery finally here: Gautam Chhaochharia, UBS India’s equity markets appear set for a stronger second half as macro uncertainties ease, earnings stabilize, and expectations of an imminent India–US trade deal rise, says Alok Agarwal, Head – Quant and Fund Manager at Alchemy Capital Management. Talking to ET Now, Agarwal said he believed the backdrop has turned decisively positive, supported by resilient earnings and improving demand indicators.Best earnings in 6 quarters for broader marketAgarwal highlights that despite muted GST trends and concern over economic softness, the Nifty 500 delivered a robust 16% year-on-year earnings growth, the strongest in six quarters. “Given this data was till 30 September, the benefits of GST rate cuts from October will further boost consumption and margins,” he says.Why Alchemy has 63% allocation to midcapsAlchemy’s Smart Alpha 250 portfolio currently holds 63% exposure to midcaps, a stance driven by fundamental earnings strength. While largecaps have posted six straight quarters of single-digit growth, midcaps delivered 20–25% earnings growth in four of the last five quarters.Agarwal argues that despite midcaps trading at a 27x forward PE—a 35% premium to Nifty—the PEG ratio tells a different story.Nifty PEG: 2.0Live EventsMORE STORIES FOR YOU✕Sensex target for 2026 at 107,000? Morgan Stanley makes big predictionIndia’s earnings cycle turns the corner; double-digit growth expected in H2: Jyotivardhan JaipuriaFIIs return to India; early signs of a real recovery finally here: Gautam Chhaochharia, UBS« Back to recommendation storiesI don't want to see these stories becauseSUBMITMidcap PEG: 1.3“This shows midcaps offer growth at far more reasonable valuations,” he notes.Sector preferences: PSU banks, financials, defence, powerAlchemy remains overweight in sectors showing strong and sustained momentum:Financials: PSU banks, small private banks, and capital market players continue to post high-quality growth.Defence & power: Both sectors enjoy strong order books and multi-year visibility.Metals: Supported by supply constraints, falling global inventories, and China’s production caps.Consumer discretionary & tech aggregators: Benefiting from structural demand and platform scalability.Earnings outlook remains strongWith GST tailwinds, festival-season demand, and policy clarity, Agarwal expects the next two quarters to register stronger growth. Midcaps—especially those in financials, power, defence, and capital markets—are likely to lead the next phase of the rally.Add as a Reliable and Trusted News Source Add Now! (You can now subscribe to our ETMarkets WhatsApp channel) Read More News onMidcaps performanceearnings growthfinancial sectorIndia equity marketsdefence and power sectorsAlok AgarwalAlchemy Capital Managementfundamental earnings strengthNifty 500GST impact (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless (You can now subscribe to our ETMarkets WhatsApp channel)Read More News onMidcaps performanceearnings growthfinancial sectorIndia equity marketsdefence and power sectorsAlok AgarwalAlchemy Capital Managementfundamental earnings strengthNifty 500GST impact(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless Prime ExclusivesInvestment IdeasStock Report PlusePaperWealth Edition123View all Stories