Record in the sight: NIFTY Midcap 100 index just 2% shy of fresh high; what's fueling the rally?

The Indian markets are struggling to find pace with global markets as they rally to record high levels. The rally in global markets is primarily driven by buying in AI-related stocks. On the contrary, the Indian benchmark indices hold no optimism and buoyancy in tech stocks as they appear to be at the receiving end of the threat posed by AI models. Consequently, the NIFTY50 continues to trade nearly 9% away from the record high levels of 26,300. The aftermath of higher crude oil prices has also added more worries to manufacturing-related costs, which further soured the investor sentiment.

However, the NIFTY Midcap 100 index has been an outperformer in these troubled times as well. It is the only index among other broader and benchmark indices that is close to its record high levels. Here is how the NIFTY Midcap 100 index fares against the NIFTY50, NIFTY Smallcap 100 and NIFTY500

Source: NSE data) (Note: The previous record highs are taken to understand the bigger picture)

The above table clearly highlights the outperformance of the NIFTY Midcap 100 index, which is close to its record high level of 60,925. Here is why the NIFTY Midcap 100 outperformed other indices

FII Buying

Foreign Institutional investors have been headlined as net sellers of Indian equities, but silently, they have also added stakes in select midcap companies. FIIs have sold more than ₹2 lakh crore worth of equities in FY26, one of the highest in recent history. However, the ACE Equity data till 24th April indicates that FIIs have added or increased their stakes in 45 out of the 100 midcap companies from the NIFTY Midcap 100 index. Out of these 45 companies, FIIs have been adding stake in 9 companies for the past four quarters consistently. The names include Pfizer, Union Bank of India, Biocon, Gujarat State Petronet, GMR Airports, Karur Vysya Bank, Gujarat Pipav Port, Varroc Engineering and L&T Finance.

Favrouable sectoral allocation

Amidst the current geopolitical headwinds, the sectoral allocation for the index has proved to be a major boon. The last financial year witnessed many headwinds, from the threat of AI to war; all these headwinds kept the price performance under pressure. The NIFTY midcap 100 index remained largely insulated from the global headwinds due to its judicious sectoral allocation. In FY26, Information Technology and Private Banks remained one of the biggest laggards in terms of price performance.

The NIFTY Midcap 100 holds 5.5% exposure to IT as compared to 9.5% in NIFTY50. The midcap index holds over 14% exposure to Industrials, which were among the top movers for the index. Alongside this, capital goods, financial services and healthcare constitute over 52% of the total sectoral allocation for NIFTY Midcap 100.

Whereas Financial Services, Oil & Gas and IT contributed over 54% of the total sectoral allocation. Poor performance by select private banks, downstream oil marketers and prominent IT companies led to overall underperformance of NIFTY50 against NIFTY Midcap 100.

Favourable earnings and valuation

The NIFTY midcap 100 has shown better earnings performance in comparison to NIFTY50 and NIFTY smallcap 100. The NIFTY midcap 100 traded at a 45x price-to-earnings valuation during its record high levels touched in September 2024. Currently, when the index hardly 2% away from the record high levels, it trades at a 34x price-to-earnings ratio. Meaning, the index’s EPS has jumped from over 20% since the September 2024 record high levels.

Meanwhile, in September 2024, NIFTY50 traded at a PE of 24x at the previous record high levels of 26,277 and currently trades at 20x PE at 24,121. Translating into earnings growth of 11%.

The earnings are likely to be influenced by many other factors like sector allocation, stock inclusion and exclusions. However, if we focus on the bigger picture, midcaps have outperformed the largecaps by a sufficient margin.

What does the data say?

Large caps have always been sought as the go-to destination for early investors, for whom it's difficult to find opportunities in the broader space. Proven businesses, strong track record have been key proponents for large-cap investing. However, data suggests, large-cap stocks have started to loose its shine in recent years. According to NSE’s latest data, the share of the NIFTY50 index in the total market capitalisation of NSE-listed companies has declined from 62.3% in FY14 to 43.8% in FY26. Meanwhile, the share of Midcap 150 jumped from 12.7% in FY14 to 21% in FY26.

The current outperformance of the Midcap index indicates the continuation of this broader trend. The Q4FY26 earnings season has just started, and the primary review shows steady earnings growth for midcap companies, while largecap companies continue to surprise with bleak outlook. Will the earnings outperformance, could alsotranslated into price performance, is a key metric that needs to be closely monitored by investors.