Mid-cap stocks see sharp decline in 2025. Time to take shelter in large-caps now? What experts suggest | Stock Market News

After enjoying strong returns over the past couple of years, mid-cap and small-cap stocks have come under significant selling pressure in 2025, with many experts now advocating a shift towards large-cap stocks amid the ongoing market downturn.

The Indian stock market has been grappling with heavy selling pressure this year due to relentless foreign capital outflows, weak corporate earnings, and the rupee hitting record lows against the dollar. Adding to investor concerns, U.S. President Donald Trump recently announced fresh tariffs on trade partners, fueling fears of a potential trade war that could slow global economic growth and drive inflation higher. 

Mid-caps underperform Nifty in 2025

The mid-cap segment has significantly underperformed the broader market in 2025 so far. The Nifty Midcap index has dropped over 12 per cent compared to a 2.5 per cent decline in the benchmark Nifty index during this period.

The sell-off has been particularly severe this month, with the Nifty Midcap index falling another 6 per cent after declining 6 per cent in January 2025. In contrast, the Nifty is down 2 per cent in February so far after slipping 0.6 per cent in January.

Experts had previously warned that broader market valuations were reaching unsustainable levels, leading to an expected slowdown. Now, multiple analysts are advising caution and recommending a shift toward large-cap stocks.

“Unlike 2024, when returns were largely front-loaded, 2025 is expected to see a reverse trend, with high volatility in the first half and returns being backloaded. Market consolidation is likely in the near term, with a further narrowing of breadth. Stocks with resilient business models, earnings visibility, and strong management will continue to command premium valuations,” said Neeraj Chadawar, Head – Fundamental and Quantitative Research, Axis Securities.

Mid-caps vs large-caps: Where to invest?

With mid-cap stocks facing persistent selling pressure, market participants are assessing whether a recovery is likely later this year or if shifting focus to large-cap stocks is a more prudent approach.

According to Devarsh Vakil, Head of Prime Research at HDFC Securities, investors should adopt a selective approach, emphasising large-cap stocks, which are expected to deliver superior risk-adjusted returns compared to mid- and small-cap indices. He attributes this to stronger earnings growth and more attractive valuations in the large-cap space.

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services highlighted the ongoing trend of large-cap stocks outperforming mid- and small-cap stocks, expecting this divergence to persist.

The analyst noted that sustained selling by foreign institutional investors (FIIs) has brought large-cap valuations to more reasonable levels, whereas mid- and small-cap stocks remain expensive. 

Vijayakumar further suggested that investors focus on quality large-cap stocks in banking, IT, autos, pharma, and capital goods, as these are likely to attract FII inflows once sentiment shifts. 

Performance of mid-cap stocks in 2025

In the Nifty Midcap 100 index, only 13 stocks have delivered positive returns so far in 2025, while the remaining 87 have recorded losses.

Top mid-cap losers

Kalyan Jewellers, with a 33 per cent decline, is the biggest loser from the mid-cap pack, followed by Godrej Properties, Polycab India, Oberoi Realty, Oracle, Voltas, PB Fintech and Paytm which have shed 25 per cent or more.

JSW Infrastructure, TI India, Prestige Estates, Mangalore Refinery and Apollo Tyres are among other top mid-cap losers, shedding over 20 per cent.

Top mid-cap gainers

SRF and UPL, on the other hand, have emerged as top gainers in the mid-space, rising 20 per cent.

Vodafone Idea, SBI Cards, M&M Finance, Sundaram Finance, L&T Finance, AU Small Finance Bank, Muthoot Finance, Nykaa, Indus Towers, Bharat Dynamics, and Patanjali Foods are trading positive on a year-to-date basis. 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.