What is Midcap Index – Features, Types and Why Should You Invest in 2023?
What is Midcap Index?
A midcap index is a stock market index that has companies ranked between 101 and 250 with a market capitalisation of Rs.5000 crore to Rs.20,000 crore. Midcap indexes are used as benchmarks for investment products like midcap mutual funds. These funds aim to track the performance of the midcap index to deliver optimal returns. In India, NSE (Nifty) midcap and BSE (Sensex) midcap index are the two common mid cap indexes. Let’s deep dive into the features and other details of the midcap index.
What are the Features of Mid-cap Index?
Here are some of the features and benefits of midcap index:
1. Market Capitalisation
Mid-cap companies have a market capitalisation of Rs.5,000 crore to 20,000 crore. The index tracks only these companies.
2. Growth Potential
Midcap index lays a strong foundation for investors willing to invest in funds related to the index. The companies that are a part of midcap index have the potential to become large cap companies. This gives investors the opportunity to capture the growth potential of these companies..
3. Diversification
Mid-cap indices typically represent a broad range of sectors. This facilitates exposure to multiple sectors and reduces the risk associated with investing in a single sector.
What are the Different Types of Midcap Indexes in India?
In India, there are several mid-cap indexes that measure the performance of mid-sized companies listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Some of the popular mid-cap indices in India include:
1. Nifty Midcap 50 Index
This index is maintained by the National Stock Exchange of India (NSE) and tracks the performance of 50 mid-cap stocks listed on the NSE.
2. Nifty Midcap 100 Index
This index is maintained by the NSE and tracks the performance of 100 mid-cap stocks listed on the NSE.
3. Nifty Midcap 150 Index
NIFTY Midcap 150 represents the next 150 companies (companies ranked 101-250) based on full market capitalisation from NIFTY 500. This index intends to measure the performance of mid market capitalisation companies.
4. S&P BSE MidCap Index
This index is maintained by the Bombay Stock Exchange (BSE) and measures the performance of mid-cap stocks listed on the BSE.The S&P BSE MidCap is designed to represent the 15% of the total market cap of the S&P BSE AllCap after the large-cap index.
5. BSE Midcap Index
This index is also maintained by the BSE and tracks the performance of the mid-cap segment of the BSE.
How is the Midcap Index Constructed?
A midcap index in India is typically constructed by selecting a group of companies from the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). These companies are ranked between 101 and 250 based on their market capitalisation. The specific methodology for selecting the companies and weighting them in the index can vary, but it generally takes into account factors such as market capitalization, liquidity, and financial performance (turnover ratio). Companies with free float market capitalisation of Rs.2,000 crore to Rs.9,000 crore are eligible for inclusion in the index.
Now let’s look into the sector-wise percentage segregation of Nifty Midcap 50, Nifty Midcap 100 and Nifty Midcap 150 index.
| Sector | Nifty Midcap 50 | Nifty Midcap 100 | Nifty Midcap 150 |
| Financial Services | 26.04% | 22.75% | 20.39% |
| Capital Goods | 15.22% | 10.02% | 13.12% |
| Healthcare | 8.04% | 11.32% | 10.42% |
| Automobile and Auto Components | 7.04% | 8.09% | 8.53% |
| Chemicals | 0% | 4.70% | 6.61% |
| Consumer Services | 8.77% | 6.51% | 5.53% |
| Consumer Durables | 3.46% | 4.69% | 5.47% |
| Information Technology | 6.82% | 5.87% | 5.19% |
| Oil, Gas and Consumable Fuels | 4.79% | 5.22% | 4.04% |
| Fast Moving Consumer Goods | 1.39% | 4.57% | 3.81% |
| Realty | 2.81% | 2.15% | 3.11% |
| Metals and Mining | 4.28% | 3.79% | 2.93% |
| Services | 2.10% | 1.57% | 1.98% |
| Textiles | 2.94% | 2.12% | 1.90% |
| Construction and Construction Materials | 0% | 1.72% | 1.85% |
| Power | 0.92% | 1.29% | 1.68% |
| Media, Entertainment and Publication | 2.55% | 1.84% | 1.42% |
| Telecommunication | 2.45% | 1.79% | 1.38% |
| Diversified | 0% | 0% | 0.54% |
Why Should You Invest in Index Mutual Funds that Track Midcap Index?
Passively-managed mutual funds that track the performance of the underlying mid-cap index are known as mid-cap index funds. Here’s why you should invest in such funds:
1. High Growth Potential
Midcap companies tend to have more room for growth compared to large-cap companies, which can result in higher returns for investors over the long-term. Historically, midcap index funds have performed better than largecap index funds.
2. Diversification
Midcap index comprises stocks of companies across various sectors. This allows investors exposure to diversify their portfolio to a large extent. This also helps in mitigating risks in the long term.
3. Low Cost Investments
Index funds are passively-managed, meaning the fund manager doesn’t actively participate in buying and selling of stocks. This significantly lowers the fund management fee, also known as expense ratio, making index midcap funds a low-cost investment option compared to actively managed funds.
4. Zero Human Bias/Error
Since midcap index funds mirror the companies that represent the midcap index without any fund manager’s active participation, there is no human bias or errors involved. However, note that the returns are subject to tracking error.
What are the Risks Associated with Midcap Index?
Here are some of the risks associated with midcap index:
1. Volatility
Midcap stocks can be more volatile than large-cap stocks. This means that the price of the underlying securities can fluctuate significantly. This can result in higher risk for investors.
2. Company-Specific Risks
Midcap companies are generally less-established compared to large-cap companies. This exposes them to risks pertaining to competition, regulation, and/or economic conditions.
3. Market Risks
Midcap indexes could fluctuate based on market conditions, such as changes in interest rates, inflation, or economic growth.
4. Diversification
Some midcap indices may not be as diversified as other indices, which means that investors may be exposed to concentration risk in certain sectors or industries.
Types of Indexes Other Than Mid Cap Index
Here are some other types of indexes:
1. Nifty 50 Index
The Nifty 50 Index comprises top 50 Indian large cap companies from various sectors based on their market capitalisation (above Rs.20,000 crore). The Nifty 50 index fund tracks the NSE (Nifty) 50 index performance in an aim to provide optimal returns to investors.
2. Nifty Next 50 Index
The Nifty Next 50 index comprises large cap companies ranked 51 to 100 in the stock market. These companies have the potential to get featured in the Nifty 50 index. Nifty Next 50 index mutual funds track the performance of the NSE (Nifty) Next 50 index .
3. Nifty Smallcap 100
The Nifty Smallcap 100 index is designed to reflect the behaviour and performance of the small capitalised segment of the financial market. The Nifty Smallcap 100 Index comprises 100 tradable, exchange listed companies.
4. BSE Smallcap Index
As many as 767 companies are part of the BSE Smallcap index. Companies that are part of the BSE Smallcap index had a market capitalisation ranging from as low as Rs.10 crore and Rs.27,000 crore.
Difference between Midcap Index and Large cap Index
Here are some of the differences between midcap index and largecap index:
1. Market Capitalisation
The main difference between the midcap and largecap index is market capitalisation. Large-cap indices typically comprise the largest companies ranked between 1 and 100 in the stock market with a market cap of, Rs.20,000 crore or more while midcap indices have companies ranked between 101 and 250 with a market cap between Rs.5,000 crore and Rs.20,000 crore .
2. Growth Potential
Midcap companies have the potential to offer higher growth than large-cap companies albeit with higher risk. However, this risk could be significantly mitigated if someone stays invested for the long term.
3. Diversification
The mid-cap indices could be slightly more diverse in terms of sectors than their large cap counterparts simply owing to the greater number of participating stocks.
Difference between Mid Cap Index and Small Cap Index
Here are some of the differences between mid cap index and small cap index:
1. Market Capitalisation
Midcap and smallcap indexes’ primary difference lies in the market cap. Small cap indexes have the smallest companies ranked above 250 in the stock market with a market cap of less than Rs.5000 crore, while midcap indices comprise companies ranked between 101 and 150 with a market cap of Rs.5000 crore to Rs.20,000 crore.
2. Growth Potential
Mid cap companies are considered less riskier than small cap companies. However, they have lesser growth potential than small cap but larger potential than large cap.
3. Diversification
Smallcap indices could be slightly more diverse in terms of sectors than their mid cap counterparts simply owing to the greater number of participating stocks.
Final Word
Mid cap indexes comprise companies from diverse sectors. Some of these companies have the potential to become large cap companies – one of the reasons why investors prefer investing in funds that track midcap index.
You can also capture the growth potential of midcap companies with Navi Mutual Fund. Navi offers Nifty 150 Midcap Fund, a low-cost mutual fund scheme that tracks the performance of midcap companies. Start investing today!
FAQs
Ans: NSE (Nifty) midcap and BSE (Sensex) midcap are the two most common types of mid cap index. NSE midcap index is listed on the National Stock Exchange while BSE midcap index is listed on the Bombay Stock Exchange.
Ans: This depends on the type of midcap index. Nifty Midcap 50 has 50 tradable stocks while Nifty Midcap 150 has 150 tradable stocks listed on the National Stock Exchange.
Ans: Investing in index funds that track the midcap index could help investors generate higher returns than largecap funds in the long-term. It also gives investors exposure to diverse sectors at a lower cost. However, consider your investment objective and risk appetite before investing in midcap index funds.
Ans: Mid cap funds are more diversified, which reduces the risk level, while small cap funds have the potential to offer highest returns among equity schemes but are extremely volatile. So, consider your investment objectives before investing in any of these mutual funds.
Ans: Large cap funds are less riskier among all equity mutual funds however the returns are lower than mid cap funds. Historically, mid cap funds have performed better than large cap funds.
Ans: Multi cap funds invest across asset classes to give investors a diversified portfolio that has exposure to companies of different sizes, thereby reducing the risk of investing in a single market capitalisation. However, since such funds have a mix of asset classes, the returns are usually lower than mid cap funds.
Ans: Since a mid cap index fund scheme tracks the performance of medium-sized companies, the degree of risk is more than large-cap funds. However, these funds are meant for long-term investments, meaning if your investment horizon is more than 5 years, the risk level would significantly be reduced.
