Emkay picks JK Cement, Motilal Oswal, 2 more small & midcap stocks. 4 reasons why

In a bullish relook at the small and mid-cap (SMID) space, Emkay Global has reiterated its constructive stance on Indian equities and picked four stocks as top SMID ideas. The brokerage has added Bikaji Foods, JK Cement, Sonata Software, and Motilal Oswal Financial Services to its SMID picks while maintaining confidence in Escorts Kubota, Metropolis Healthcare, One 97 Communications (Paytm), and StoveKraft.

Emkay’s confidence in SMIDs stems from the belief that small and midcap stocks are not in bubble territory despite appearing elevated on headline P/E metrics. The brokerage argues that a significant portion of the Nifty’s lower valuation is driven by heavy exposure (20%) to low P/E sectors like financials and energy, areas where SMIDs have relatively less weight.

On a sector-adjusted basis, SMID stocks show no material deviation in valuations or fundamentals compared to their large-cap peers, it said.

Emkay’s preference leans toward SMID-heavy sectors such as consumer discretionary and materials, while it remains underweight on largecap dominated sectors like financials and FMCG. This sectoral tilt, along with improving earnings quality and resilient fourth-quarter results, underpins the firm’s confidence in the SMID segment.

4 reasons why Emkay remains bullish on SMIDs:

1) Emkay’s bullish tilt toward SMID stocks is underpinned by supportive fundamentals, attractive sector dynamics, and a potential earnings upswing.

2) With the US striking tariff deals with countries, market sentiment is steadying. Political uncertainties have also subsided, and a further ease in tensions would lead to outperformance in SMIDs over their larger peers.

3) The brokerage sees earnings upgrades in FY26 as likely, citing softer commodity prices, signs of demand recovery, and anticipated monetary easing. Already, 61% of companies with broad analyst coverage are projected to report stronger EPS growth in FY26 versus FY25—a trend that could further strengthen if upgrades materialize in sectors like discretionary, energy, and technology.

4) Valuations are viewed as neutral, with the Nifty trading around its long-term average. However, Emkay highlights that 30% of BSE 200 stocks are trading at more than one standard deviation above their historical P/E, suggesting investors are already rewarding earnings resilience.

Sector preferences

Consumer discretionary remains our top OW, with technology/healthcare/real estate /utilities as the other preferred sectors. We remain UW on financials and staples, where we see a severe growth-valuation mismatch. Our model portfolio remains unchanged this week.

The firm advises using any short-term pullbacks to accumulate high-beta SMID names.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)