New Delhi, Aug. 19 -- It's often said that stock prices are a slave to earnings, but this adage doesn't seem to hold up for the Indian stock market currently. Nifty and small and mid-cap stocks have rallied between 12% and 20% over the last few months, despite earnings downgrades and a slowing economy, creating a sharp disconnect between valuations and growth.

In the recently concluded June quarter earnings for FY26, Nifty50 EPS grew 9.5% YoY, as against JM Financial's expectation of 10.3% YoY. As a result, the brokerage lowered its Nifty50 EPS estimates for FY26E and FY27E by 1.3% and 0.7%, respectively.

Further, the proportion of misses was highest in small-caps, followed by large-caps, and then mid-caps. Specifically, 43% of small-ca...