By Swapnil KarkareWhat’s a blockbuster movie? In 2019, a Rs. 475 crore box office collection made a film the year’s biggest hit. Fast forward to 2024, and the bar is much higher. The top grosser, Pushpa Part 2,raked in Rs. 1,755 crore.
That’s also what has happened in the case of stock markets. The definition of a large-cap stock has moved up.
AMFI classifies 'largecaps' as the top 100 companies by market capitalisation, regardless of the value. Back in 2019, the large-cap threshold was Rs 25,000 crore. Today, it’s Rs 1 trillion.
"With the ongoing bull run, these thresholds are continuously breaking records, setting new highs with every semi-annual review," notes Nuvama.
AMFI reclassifies stocks twice a year. Some stocks move up the ladder – from small to mid-caps, and from mid to large caps. They also get reclassified downward.
The announcements come in early January (for changes effective February 1) and again in early July (effective August 1). The cut-off dates are December 31 and June 30, respectively, and mutual funds have about a month after that to rebalance their portfolios accordingly.
Does this classification matter? That’s what we look at in today’s piece.
In this week's Analyticks:
- Last year's winner, this year's loser: Stocks moving in and out of the largecap list
- Screener: Companies outperforming their 3-year average RoE, and beating the industry
Additions to the largecaps: from IPO giants to multibaggers
The December 2024 cut-off highlighted how IPO giants can quickly ascend into the large-cap space. Hyundai, Swiggy, Bajaj Housing Finance, and NTPC Green Energy entered the largecap club right after listing.
Strong price action helped stocks like RVNL make the cut. RVNL has been a standout performer in the railway space, thanks to its strong fundamentals and large government contract wins. The stock tripled between January and July 2024, and has also secured its place in the MSCI Emerging Market and MSCI India Domestic indexes.
Another addition, Info Edge also made waves, benefitting from better hiring trends, AI-led productivity gains, and Jeevansathi and 99acres showing signs of breakeven. It also got upgraded by Goldman Sachs and Bank of America.
Banks fall off the large-cap list
But this is a zero-sum game. For every winner, there's a loser, for every upgrade, a downgrade. This time, the casualties have included public sector banks and even a few financially sound players.
Public sector bank stocks have been hit by profit booking, weak deposit growth, SBI’s downgrade by Goldman Sachs, and exposure concerns tied to the Vodafone Idea AGR dues and Adani’s legal battles.
Elara Securities says, “We believe PSBs might not be able to drive their returns further, and, at best, may sustain earnings. So there would be limited scope of rerating and it would be relatively slow.”
IndusInd Bank’s demotion to mid-cap came after a sharp 35% decline in shares between September and December 2024, after weak Q2FY25 results. The fall worsened in March 2025 after a Rs. 1,500 crore discrepancy in its derivative accounts (2.35% of its net worth) came to light. This triggered a 27% single-day crash in its stock prices and a dip in mutual fund holdings from 30% in December 2024 to 28% in March 2025.
Additionally, some fundamentally strong companies have exited the large-cap category, not due to poor financial health but from high valuations and sluggish momentum.
Buy the rumour, sell the news
With reclassification, stocks don't always behave the way you'd expect. We looked at the performance across four key periods around the cut-offs: i) a month before the cut-off - when predictions start (e.g. Dec 2024), ii) a month after cut-off - when changes are announced but not yet implemented (Jan 2025), iii) one month post-inclusion (Feb 2025), and iv) two months post-inclusion - when mutual fund rebalancing is mostly done (Mar 2025)
Stocks that were expected to be included usually rallied before the cut-off. Market whispers and analyst predictions also drive this pre-cut-off surge. For instance, IRFC surged 33% in December 2023, Motherson gained 26% in June 2024, and Swiggy climbed 15% in December 2024—one of the few stocks posting gains during that cycle.
But once the changes are in place, the momentum fades, partly due to profit booking. For example, IRFC fell 16% after its inclusion and lost another 3% two months later.
Many of these stocks bounce back in price about two months post-inclusion, due to company-specific news or mutual fund rebalancing. The saying “Buy the rumour, sell the news” fits large-cap changes perfectly.
Not all is lost for stocks falling off the list
Surprisingly, stocks which dropped out of the large-cap list have also rallied a month before the reclassification. Sometimes even bad news can trigger short-term gains — possibly due to short covering, value buying, or repositioning ahead of the reshuffle.
However, once exclusion becomes official, stocks tend to decline in the immediate aftermath. Despite this, historical trends suggest that many bounce back within two months, as valuations get cheaper. Thus, the impact of a downgrade can be temporary.
Fundamentals matter
Market cap labels alone don’t drive stock prices. Business fundamentals matter. Since the cut-off dates often coincide with earnings seasons, financial results play a crucial role.
Take the case of Swiggy. Despite its oversubscribed IPO, its stock prices fell post-inclusion, largely due to disappointing Q3FY25 results. Its consolidated loss widened by 39% YoY, impacted by growing competition and tough macroeconomic conditions.
Zydus Lifesciences saw a 14% contraction following its inclusion in the June 2024 large-cap list, despite a 31% net profit jump in Q1. Citi maintained caution, noting that a few niche drugs drove the US sales growth in previous quarters and that it is not sustainable, reinforcing its ‘sell’ rating.
On the flip side, stock prices of Bosch and ICICI General Insurance rose despite being downgraded to midcap. Bosch reported 62% jump in net profit in Q3FY24 on fueled by robust auto components growth, while ICICI Lombard outperformed its peers and delivered 49% YoY profit increase in Q1FY25.
Who’s next?
Ahead of the August reshuffle, the market is already keeping a close watch on the predictions. Here are the names making waves and the ones at risk.
Nuvama estimates 11 stocks, such as Indian Hotels, Mazagon Dock, Solar Industries, and Dixon Technologies, that might make up a grand entry, thanks to their solid market cap growth, sectoral tailwinds and institutional backing.
Indian Hotels continues to ride the hospitality sector’s recovery, with Motilal Oswal optimistic about its momentum, strong demand, higher rates, and better occupancy driving the surge.
Mazagon Dock’s case reflects the growing focus on defence and shipbuilding. Nirmal Bang forecasts a 4x surge in order book, expanding margins, and a 25% stock price upside.
Meanwhile, names like Swiggy, RVNL, Polycab, NTPC Green, etc., might face a downgrade. Newly listed firms such as Swiggy and NTPC Green often face selling pressure in the post-lock-in expiry. Swiggy, in particular, has struggled to keep up its stock prices this year amid stiff competition.
Polycab faces intense competition from new players like Ultratech and Adani, adding pressure to its stock prices.
RVNL, on the other hand, was among the top 10 large-cap stocks sold by mutual funds in March this year, largely due to high valuations. Seema Srivastava of SMC Global Securities remarked, "RVNL shares are under pressure, but nothing is wrong with the company's fundamentals."
It's time to rethink how we think about largecaps
India's market is evolving, and maybe the classification system should too.
Back in 2019, the large-cap threshold was Rs 25,000 crore. Today, it’s Rs 1 trillion. This calls for a fresh approach.
Ajay Garg of Equirus proposes using market cap-based classification, like in the US, instead of ranks. The US sets a floor of $10 billion for largecaps, offering a more stable benchmark. India can similarly do this at say, Rs. 1 trillion, instead of doing a top 100. This way, Garg adds, “The number of stocks with institutional interest could expand to 650-700 and broaden the market.”
Garg also proposes a six-month transition to avoid market disruption and improve fund managers’ flexibility. This would help in including newly listed companies after going through a lock-in period and a value discovery process.
Screener: Companies outperforming their 3-year average RoE and outpacing industry peers
GSK Pharma, Dixon among top ROE outperformers
As the FY25 results season ends, we look at companies with high annual returns on equity (RoE) growth. This screener shows stocks with RoE above their 3-year average and higher than their industry peers.
The screener consists of stocks from the aluminium & aluminium products, pharmaceuticals, realty, consumer electronics, roads & highways, and industrial machinery industries. Major stocks in the screener are Page Industries, ITC, GlaxoSmithKline Pharmaceuticals, Dixon Technologies, Vedanta, GE Vernova T&D India, Premier Energies, and IRB Infrastructure.
Page Industries’ FY25 RoE stands at 51.8%, outperforming the other apparel & accessories industry by 20.5 percentage points. The company also outperformed the 3-year average RoE of 43%. Its 28.1% net profit growth during the year (beating the growth rates in FY23 and FY24) helped with RoE outperformance. Lower raw material and inventory expenses due to reduced inflation drove profitability.
GlaxoSmithKline Pharmaceuticals also features in the screener with an RoE of 47.5% in FY25, outperforming the pharmaceuticals industry by 29.6 percentage points. The company also beat its 3-year average RoE of 38.8%. RoE outperformance was driven by a 56.1% net profit growth, rebounding from declines in FY23 and FY24. Improvement in product mix to products with higher margins, improvement in productivity and lower raw material expenses due to a reduction in inflation drove profitability.
You can find some popular screeners here.
