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ICICI Securities Report
As per our proprietary ‘risk-spread’ framework, large caps have a trailing earnings yield of 3.5% while mid, small and micro caps continue to yield higher at 4.2%, 4.5% and 6%, respectively.
While the yield spread of mid and small caps over large caps has dipped sharply since the end of CY19 due to their outperformance, it has not disappeared or turned negative, which typically coincides with the peaking out of mid and small caps.
Headline price/earning valuations of mid and small cap indices are significantly distorted as they currently have significant loss pools thereby optically magnifying the numbers.
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