Large-Cap Stocks are gaining renewed attention as higher oil prices, rising bond yields and tighter global monetary policy raise concerns over the outlook for equities.
Analysts believe the recent market correction has made large-caps more attractive on valuations, particularly compared with mid- and small-cap stocks.
The US 10-year Treasury yield has climbed to 5.32% from 4.15% at the end of 2025, marking a 117-basis-point increase in 2026. Brent crude has also been hovering around the $100-a-barrel level amid the ongoing West Asia conflict, although prices have eased from the $125 level seen earlier this year.
These developments have increased concerns about inflation and interest rates. The US Federal Reserve has raised its policy rate by 25 basis points to 3.75%-4%, while the Bank of Japan has raised rates twice to 1.25%. The European Central Bank has also increased rates by 25 basis points to 2.25%. Indian bond yields have risen nearly 50 basis points over the past two months to 7.21%.
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Key Highlights
- Large-cap stocks are gaining favor as rising oil prices, bond yields and tighter monetary policy increase market risks.
- Large-cap valuations have corrected sharply, with forward PE falling to 17.6x from 24.8x at the 2024 peak.
- Analysts see potential for large-caps to outperform smaller peers if oil prices and bond yields cool, attracting FIIs back to Indian equities.
Large-Cap Stocks Gain an Edge on Valuations
Jefferies India believes the risk-reward equation is becoming more favorable for large-caps as their relative valuations improve against mid-caps, while the earnings growth gap is narrowing over FY26-28.
G Chokkalingam, Founder and Head of Research at Equinomics Research, expects selected small- and mid-cap companies with strong earnings to continue performing well. However, he sees greater potential for large-caps to outperform if oil prices and bond yields begin to cool.
A decline in oil prices and global yields could also encourage foreign institutional investors (FIIs) to return to Indian equities, particularly large-cap stocks. However, the timing could depend on how the West Asia conflict affects crude prices, bond yields and the broader interest-rate outlook.
The valuation data also supports the shift. MSCI India's one-year forward price-to-earnings ratio has fallen to 18.4x, around 7% below its 10-year average. However, India still trades at a 90% valuation premium to emerging-market peers, compared with its 10-year average premium of 64%.
