Why Mid-Cap Stocks Are Back in Focus Now

 

Why Mid-Cap Stocks Are Back in Focus Now

Mid-cap stocks have been under pressure for some time, and many investors have been wondering whether this segment still offers value. A closer look at the data suggests that mid-caps may now be in a healthier position than what the headline index returns indicate.

The key reason lies not in prices alone, but in valuations and earnings growth.

What has happened to mid-caps?

From September 2024 to December 2025, the Nifty Midcap 150 Index delivered almost 0% price return. At first glance, this may appear disappointing. However, during the same period, the earnings of mid-cap companies grew strongly.

• Earnings Per Share (EPS) of the Nifty Midcap 150 Index increased from around ₹480 to ₹660

• This translates into an EPS growth of about 37.5%

• At the same time, the Price-to-Earnings (P/E) ratio corrected by nearly 25% from its peak

In simple words, earnings went up, but prices did not.

Understanding this with a simple example

Imagine a shop earning ₹10 per year and trading at a value of ₹450.

This means investors are paying 45 times its earnings (P/E of 45).

Now suppose the shop improves its business and earnings rise to ₹14.

But instead of the value rising, the shop is now valued at ₹350.

• Earnings increased by 40%

• Price stayed flat or even fell

• P/E comes down to 25

This is exactly what has happened in mid-caps.

The excess valuation has corrected, while business performance has improved.

Why this matters for investors

High P/E ratios usually indicate optimism and expensive valuations. A correction in P/E without a collapse in earnings is often considered a healthy reset, not a sign of weakness.

For long-term investors, this means:

• Mid-cap companies are now trading at more reasonable valuations

• Earnings growth has already been delivered, not just expected

• Future returns, if earnings continue to grow, may come from a combination of profits growth and gradual re-rating

A word of caution

Mid-caps can be volatile in the short term. They may go through phases of ups and downs. However, for investors with a long-term horizon and disciplined approach, periods of valuation correction have historically offered better entry points than euphoric peaks.

Conclusion

The recent phase in mid-caps is not about market excitement, but about fundamentals catching up with prices. A 25% correction in valuations combined with nearly 38% growth in earnings suggests that the segment has become more balanced.

As always, investment decisions should be aligned with individual risk appetite, time horizon, and financial goals.