Of the 100 large-caps, 96 hit their all-time highs in the past five years and 42 of these 96 are trading at least 20% below their peaks.
Over the last one to two years, it has become almost cliched to point out that large-caps are attractive/offer value than small- and mid-cap stocks. How true is that?
Last week, Trent, a large-cap, delivered a healthy revenue growth (year-on-year) of 17 per cent in Q3 FY26. Yet, the stock fell about 10 per cent after results. The stock is down over 52 per cent from its October 2024 peak. Trent is not alone, and similar stories are playing out in other large-caps too.
Of the 100 large-caps, 96 hit their all-time highs in the past five years and 42 of these 96 are trading at least 20 per cent below their peaks. So, before tuning into the usual safety mantras for large-caps, investors should get a hang of why many stocks in that segment, too, have tanked.
Valuation issue
Despite crashing over 20 per cent from all-time highs, several large-caps such as Eternal (P/E of 1460x), Avenue Supermarts (91x), Solar Industries (90x), CG Power (88x), Trent (87x), Siemens Energy (78x), Adani Green (77x) and Max Healthcare (73x) still trade at lofty earnings multiples. High valuations were easier to justify earlier when earnings growth visibility was strong and ultra-low global bond yields made Indian equities attractive for FIIs.
Those tailwinds are now fading. Large-cap valuations are increasingly being tested by one or more of three factors — stock prices far outpacing earnings growth, delayed profitability and tapering growth.
For example, market-caps of stocks such as HAL and Solar Industries have significantly outperformed earnings growth. Since the end of 2019, HAL’s market-cap has grown 12.2x, while its earnings have grown just 2.9x (trailing twelve months basis). Solar Industries’ market cap is up nearly 12x against a 4.5x jump in earnings.
In general, there has been a broad-based valuation expansion. As of December 2019, the then large-caps had a median P/E of 27x (see chart). Over half of them had a P/E ratio below 30x. However, now the median P/E has jumped to 34x and only 39 per cent of the stocks have a P/E of below 30x.
It’s starker when you look at the large-cap universe excluding financials. The current large-caps excluding financials have a median P/E of 37x, with only one in three stocks with P/E ratio below 30x.
Estimates awry
At bl.portfolio, we conducted an analysis (data from Bloomberg) to find whether large-caps delivered earnings in line with consensus estimates prevailing at their all-time highs. The results (see chart) show significant misses across several names.
For stocks that peaked in FY26, estimate cuts have been sharp. FY26 consensus estimates are down 27 per cent for Eternal, 38 per cent for Indigo, 22 per cent for Mazagon Dock, and 15 per cent for Adani Power compared with levels at their peaks. Trent’s FY26 earnings estimates are now nearly half of what they were at its all-time high.
Compounding this is the issue of tapering growth for some stocks such as Trent and Avenue Supermarts. For instance, Trent’s revenue in 9M FY26 grew a lower 18 per cent versus 42 per cent in 9M FY25. This valuation-growth disconnect was a key trigger for the stock correction last week.
In a global financial regime with ample liquidity, some of these factors could be wished away. But as discussed in this column earlier, (bl.portfolio edition dated December 21, 2025 ‘What must change before FIIs return’), the global liquidity cycle of the past 15-17 years is changing. As this happens, large-cap valuations will get more anchored by fundamentals and less by other factors.
What is the right valuation for large-cap stocks? The year 2026 might give a clear answer for that.
Published on January 10, 2026
