The Nifty 50 is still about 11% below its January record. Even so, Bajaj Life’s chief investment officer says fresh money belongs in largecaps, not the smallcap and midcap rally everyone’s been chasing. Here’s the data that backs that call and the data that pushes back.
Since April 1, smallcaps have gained roughly 31%, midcaps about 18% and the Nifty 50 only about 5%, Srinivas Rao Ravuri, Chief Investment Officer at Bajaj Life, told The Economic Times.
Calendar-year figures tell the same story: as of August 31, the Nifty was down 7.8% for 2026, while the Midcap 100 (+5.1%) and Smallcap 100 (+12.5%) sat near record closes.
Ravuri calls the divergence extreme and says largecaps now offer the better risk-reward for fresh money. His case rests on four pillars: stretched broader-market valuations, new share supply absorbing FII inflows, a Fed rate hike, and Brent above $100.
Need to Know
- The call: Ravuri told ET the Nifty trades near its long-term average forward P/E, while midcaps and smallcaps trade at premiums of as much as 50% to their own long-term averages.
- The flows twist: FPIs were net buyers in July–August, but most of that funded new issuance, not secondary-market buying. September has reversed — FIIs have sold ₹17,810 crore this month, taking 2026 selling to ₹2,42,251 crore, per NSDL.
- The supply overhang: Equity issuance hit a five-year high of ₹2.36 lakh crore in FY27’s first five months. The ₹22,562 crore NSE IPO closes Monday, September 21.
- The macro squeeze: The Fed hiked rates 25 bps on September 16, its first since 2023. Brent has held above $100 all week, near $103–104 on Friday.
- Where he’d invest: large private banks, tactical IT, defence and power, with valuation discipline. Consumer staples, he says, are still expensive.
- Where the call is weakest: Nifty earnings growth is concentrated in a handful of stocks, and foreign ownership is at a multi-year low.
Index Scorecard: Nifty vs Midcap vs Smallcap
| Index | Since April 1, 2026 | Calendar YTD (to Aug 31) | Recent close |
|---|---|---|---|
| Nifty 50 | ~+5% | -7.8% | 23,346.40 (Sep 18); 11.3% below its 26,329 record |
| Nifty Midcap 100 | ~+18% | +5.1% | Record close 64,162.9 (Aug 25) |
| Nifty Smallcap 100 | ~+31% | +12.5% | Record close 19,978 (Aug 21) |
Since-April figures are Ravuri’s own framing (single-source, ET interview); calendar YTD figures are independently verified.
Why Ravuri Calls The Premium The Problem
Ravuri accepts stronger earnings explain part of the broader market’s run but argues multiple expansion did much of the work; strong future earnings, he says, are already priced in.
Independent data confirms the direction, not always the size: the Nifty Smallcap 250 traded at a P/E of 33.23 on September 17, 17% above its five-year median of 28.33, but only about 4% above a separate 10-year median of 31.8. The size of the “premium” depends on the yardstick; Ravuri’s 50% sits at the top of the range, not the norm.
Largecaps look more reasonable by comparison: on Motilal Oswal’s FY27/FY28 EPS estimates of ₹1,232 and ₹1,425, Friday’s close values the Nifty at roughly 19x FY27 and 16.4x FY28 earnings (NiftyTrader calculation), below Motilal Oswal’s own long-period average forward P/E of 20.8x.
The Earnings Case, Complicated By Concentration
Nifty companies posted 18% year-on-year Q1 FY27 profit growth, the highest in 10 quarters excluding oil-marketing-company losses (₹18,100 crore combined).
But five stocks, ONGC, Hindalco, Reliance, JSW Steel and Bharti Airtel, drove 60% of the Nifty’s incremental earnings, and smallcap profit’s 31% rise came against a base-year growth of just 1%.
Ravuri also flags a base effect ahead: GST-linked revenue growth may slow from Q3, though he expects earnings to hold as margin pressure reverses. His advice: watch revenue and margins together, not the headline number.
The Flows Puzzle: Where FII Money Is Actually Going
ET asked Ravuri why the Nifty stood still despite two months of positive FII flows. His answer: IPOs, OFS and pre-IPO PE exits are absorbing the money, so fresh inflows fund new issuance rather than secondary-market buying. NSDL data backs him, more so in July than August:
| Month | Net FPI inflow | Via exchanges (secondary) | Via primary market/others | Primary market share |
|---|---|---|---|---|
| July 2026 | ₹20,199 cr | ₹6,731 cr | ₹13,467 cr | ~67% |
| August 2026 (to Aug 25) | ₹27,186 cr | ₹15,491 cr | ₹11,694 cr | ~43% |
| September 2026 (MTD, to Sep 18) | Net FII selling: ₹17,810 cr | — | — | Selling-dominant; full primary/secondary split not yet published |
September has flipped tone; FIIs sold ₹3,208.76 crore on Thursday against DII buying of ₹3,617.75 crore, before turning net buyers of ₹599.50 crore on Friday. FII ownership of Indian equities has touched a 17-year low, per NSE data.
Track Live: NiftyTrader’s daily FII/DII flow tracker — primary vs secondary market split
The Supply Wave: NSE IPO And What Comes Next
Of the ₹2.36 lakh crore raised in FY27’s first five months, ₹70,540 crore came via OFS and ₹1.65 lakh crore via fresh issuance, across fewer but larger deals, 377 issuers versus 491 in FY26.
The NSE IPO is the biggest test: a 100% ₹22,562 crore offer for sale at ₹1,700–1,785 a share, with SBI, Canada Pension Plan Investment Board and two Mauritius-based funds exiting. Trimmed from an earlier ₹30,000 crore plan, it would still rank India’s second-largest IPO at the upper band, after Hyundai Motor India.
It closes September 21, lists tentatively September 24, and was subscribed 1.10 times on Day 2 (retail: 0.70 times); the grey market premium was an informal, non-exchange-published ₹119 a share (7%) on September 18.
A Bank of Baroda report names Jio, boAt, OYO, Zepto, MakeMyTrip and PhonePe among names expected to follow.
Also Check: NiftyTrader’s NSE IPO subscription and listing-day tracker
Fed Hike, $100 Crude And The Yield Trap
The Fed’s hike lifted its target range to 3.75%–4%, with most policymakers signalling one more hike this year.
Ravuri expects Indian yields to rise and calls that a clear valuation headwind, though he still prefers equities, expecting double-digit returns over 12–18 months. He’d flagged Brent in the mid-$90s as the level that, if sustained, would trigger a portfolio review; Brent has since held above $100 for a third straight week, near $103–104 on Friday, with the rupee weak near 95.94/dollar.
YES Securities’ Amar Ambani counters that strong domestic liquidity better insulates India from global rate shocks, though he agrees expensive mid- and smallcaps stay vulnerable if US yields spike or earnings disappoint.
Where Ravuri Would Put Money
- Large private banks (top pick): strengthening credit growth, benign asset quality, and comfortable capital — though the RBI’s $127.22 billion FCNR(B) swap inflow could compress loan margins via competition for borrowers, per ICRA.
- IT (tactical): a contrarian bet, but old multiples are unlikely to return given AI’s deflationary pricing effect — buy at pessimism, trim on recovery. Nifty IT fell 1.03% Friday.
- Defence and power: strong order-book visibility, but valuations leave little room for disappointment — “a good business doesn’t automatically make a good investment at any price.”
- Consumer staples: still expensive even post-correction, given modest growth.
Also Read: RBI Closed FCNR(B) Window as Inflows Surged Beyond Expectations
Where The Largecap Call Is Weakest
Momentum runs against Ravuri: GQuant’s Shankar Sharma stays constructive on small- and midcaps, and broader-market indices are at records because earnings have delivered so far.
Largecap leadership is narrow, the same five stocks drove most of the Nifty’s earnings gain, and foreign money hasn’t returned, with FII ownership at a 17-year low. A largecap re-rating needs a buyer who has so far stayed away.
One more wrinkle: India VIX closed at 11.38 Friday, down 7.4%, near the low end of its range despite a Fed hike, $100 crude and record IPO supply. Worth watching, not a forecast.
Also Check: NIFTY50, SENSEX, INDIA VIX
Three Things To Watch
- NSE IPO close and listing (September 21–24) — how much secondary-market liquidity it absorbs.
- Brent, the rupee and Indian bond yields — Ravuri’s named trigger for a portfolio review.
- September’s final FPI tally and October’s Q2 results — whether selling continues and the margin recovery shows up.
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Disclaimer: This article is for informational purposes only and is not investment advice. Market data is as of September 18, 2026, closing unless stated. Investments in securities are subject to market risks. Consult a SEBI-registered investment adviser before making investment decisions.
