Batra pointed out that recent earnings trends are supporting a recovery in mid and small cap segments. “Look at the fourth quarter earnings season, where growth is again looking in high teens at a broad index level,” he said, adding that if this trend continues for two to three more quarters, the rally in smaller stocks could sustain.
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However, valuation comfort lies with the large caps. “We are 12% above average valuation versus mid and small cap — all thanks to the recent rally, we are now 35 to 40% above average valuation mark,” Batra said. This makes the larger companies more attractive to global value investors, who may remain cautious about jumping back into mid and small caps.
JPMorgan’s view is that earnings, not valuations, will be the deciding factor for market direction. While a pickup in corporate performance could drive gains across the board, the absence of consistent double-digit growth could push investors to favour safety and liquidity in large caps.
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The Reserve Bank of India (RBI) policy decision on June 6 is also a key event on investors’ radar. JPMorgan expects a 25 basis point cut, with Batra noting that any dovish surprise in tone or guidance could lift sentiment further. He believes macro signals, including policy action, will be critical market drivers in the near term.
