Large-Caps Gain Favor Amid Rising Oil and Bond Yields

Large-cap stocks are regaining favor among analysts as rising oil prices and bond yields heighten concerns about global equity markets. The US 10-year Treasury yield has surged to 5.32 percent from 4.15 percent at the end of 2025, marking a 117 basis point increase in 2026. Meanwhile, Brent crude oil prices are nearing $100 per barrel, driven by geopolitical tensions in West Asia, though they have eased from earlier highs of $125 per barrel.

The tightening economic conditions have prompted global central banks to adopt a more hawkish stance. The US Federal Reserve raised rates by 25 basis points to 3.75-4 percent, its first hike in three years. The Bank of Japan has increased rates twice to 1.25 percent, and the European Central Bank has raised rates to 2.25 percent. In India, bond yields have risen nearly 50 basis points over the past two months to 7.21 percent.

Analysts at Jefferies India believe the risk-reward profile is improving for large-cap stocks due to better relative valuations compared to mid-caps. Mahesh Nandurkar, managing director and head of equity research at Jefferies India, noted that the earnings growth gap is narrowing over FY26-28E. G Chokkalingam, founder and head of research at Equinomics Research, expects large-caps to outperform smaller peers, particularly if oil prices and bond yields stabilize.

Valuation gaps are also favoring large-caps. The MSCI India’s one-year forward PE has dropped to 18.4x, about 7 percent below its 10-year average. However, it remains 90 percent higher than emerging-market peers. Companies accounting for 39 percent of MSCI India’s weight now trade at valuations at least 10 percent below their historical averages. The Nifty 50 has slipped nearly 13 percent in 2026, while small- and mid-cap indices have gained around 7 percent and 16 percent, respectively.