Mid-cap is the term given to firms with medium-sized market capitalisation.
"With NDA coming back into power we can expect local investors to take comfort in the mid and small-cap space with a longer 2-3 year horizon and inflows could resume in them," a Kotak report said.
"In terms of market cap orientation we see more value in Mid and Small-Caps rather than Large-Caps at this stage."
Elaborating on the reasons behind its assessment, the report said that local flows, which are the main driving force for mid and small-cap companies, have seen a sharp slowdown in the last six months.
On the overall scenario, the report expressed concerns over economic growth and investment.
"The priority of the government will be to revive economic growth and investment, although the macro-economic situation is quite challenging. There is a need of strong fiscal stimulus but scope of doing so seems limited given the high crude prices leading to higher current account deficit and higher fiscal deficit," it said.
With the Lok Sabha elections that concluded on Thursday, the report sees the markets going back to the "basics".
Factors like the US-China trade war, the behavior of crude prices in the midst of the reimposition of US sanctions on Iran, earnings and valuations, the Reserve Bank of India's (RBI) forthcoming policy review, and the build-up to the Union Budget will guide the markets, the report said.
It also pointed out that sectors like capital goods, construction, building materials, corporate banks, power equipment, housing finance companies and rural-focused companies will benefit the most over the next one year.
Consumption stocks, however, could take a back seat because of the slowdown in demand and rich valuations, the report added.
( With inputs from IANS )