Mid-cap information technology players may have hit valuation ceiling

Sharp premium over larger peers and ability to maintain margins can cap gains

Mid-cap information technology (mid-cap IT) companies have outperformed their large-cap peers over the past year, with returns of 138 per cent as compared to the IT big boys which enriched investor wealth by 77 per cent. The rerating in mid-cap plays has been sharper over the last six months with the difference stretching to over 121 percentage points.
 
Street expectations from large- and mid-cap IT companies are also reflected in the expansion of the aggregate price-to-earnings (P/E) multiple. A year ago, there was hardly any difference between valuations of the big 5 and the next five IT companies on