What is NIFTY Midcap 150

Introduction

The past few years have seen a significant increase in the number of retail investors who invest in equity in the country. As investors become more and more financially savvy, they begin to look for higher-return instruments, according to their risk appetite. They seek exposure to different sectors and companies that have the potential of giving disproportionately high returns. If you are one of these, you would want to learn about midcap stocks that offer high returns at higher risks. Various indices track these stocks to give an idea about their performance year on year. These indices are structured with different stock inclusion criteria, weightage, and rebalancing schedules.

This article focuses on an index called NIFTY Midcap 150, exploring its structure, advantages, and the process of investing in it.

What is NIFTY Midcap 150?

NIFTY Midcap 150 is an index consisting of 150 companies ranked between 101 and 250 based on full market capitalisation from NIFTY 500. 

Full market capitalisation stands for the product of the stock price of the company and the total number of outstanding shares. The total outstanding shares include both the active shares available in the market and the inactive shares held by promoters and the government. 

The index was launched in April 2016 with a base value of 1000 on the base date of 01 April 2005. It is rebalanced semi-annually with the average data of 6 months before the cut-off date used to determine the stocks that would make it to the list. The cut-off dates are 31 January and 31 July.   

Weightage in NIFTY Midcap 150

While the inclusion of stocks in the NIFTY Midcap 150 index is decided based on the full market capitalisation of the company, the weight of the stock is decided based on the free-float market capitalisation.

Free-float market capitalisation refers to the product of the price of the company stock and the number of shares readily available in the market. 

For example, let us say a company has a total of 1 lakh shares, of which 80,000 are available in the market and 20,000 are held by promoters. The stock price of the company is Rs. 50. Now, the full market capitalisation would be 1 lakh x50 = 50 lakh. The free-float market capitalisation will be 80 thousand x 50 = 40 lakhs. 

Therefore, companies with a higher free-float market capitalisation are ranked higher in the index. The table below lists the top 10 companies by free-float market capitalisation in NIFTY Midcap 150.

As you can see, the weights of various sectors in the index are not the same. Some sectors have a high representation in the index and some do not. Here is a list of weights of various sectors in NIFTY Midcap 150 as on January 2023.

NIFTY Midcap 150 Index Performance

The index has delivered constantly higher returns than NIFTY 100 during periods of good market performance. On the other hand, it has underperformed the NIFTY 100 in times of negative market performance. 

That is, the average rolling returns for NIFTY Midcap 150 have been higher than NIFTY 100; however, with a higher standard deviation (standard deviation is an indicator of volatility in the stock price). This means that the return-risk ratio of the index is relatively lower than that of NIFTY 100. 

Here is a comparison of returns given by NIFTY Midcap 150 versus other indices (as on August 2021 as per the latest NSE report).

How to Invest in NIFTY Midcap 150?

One can gain exposure to NIFTY Midcap 150 by investing in an index fund or ETF that tracks the index. Here are some of the index funds that you can choose from.

Apart from investing directly in the Nifty Midcap 150 stocks or gaining exposure to a fund/ETF tracking the index, one can also invest in options – which are derivatives of the underlying index. 

Benefits of NIFTY Midcap 150 funds

NIFTY Midcap 150 funds offer a unique opportunity to invest in companies that fall between large-cap stability and small-cap growth potential.

While the midcap segment can be volatile with short-term fluctuations and market challenges, it still offers higher growth potential compared to large-cap funds, as mid-cap companies are often in their expansion phase.

Additionally, these funds enable investors to tap into the benefits of long-term wealth creation by investing in emerging businesses that could become tomorrow’s market leaders. With professional fund management, these funds suit investors seeking a balanced risk-return profile.

NIFTY Options Explained

Options are contracts that allow an investor to buy or sell an underlying stock or index before a specific date. The contract provides the investor an ‘option’ which is not an ‘obligation’. These options allow you to benefit from predicting the correct movement of the underlying index. 

For example, if you think that the NIFTY Midcap 150 is bound to decline in the next month, you could invest in a 'Put' option with expiry at the end of next month. This option allows you to sell the underlying index at a predetermined higher price than the prevailing market price of the index.

To Summarise

In conclusion, the NIFTY Midcap 150 index offers investors a valuable opportunity to access a diversified basket of 150 companies with growth potential. Investing in these, although is relatively risky, has the potential for high returns. These companies have the opportunity to become leaders in their sectors, potentially leading to long-term wealth accumulation. By understanding its structure, advantages and the investment process, individuals can make informed decisions to potentially benefit from the growth of mid-cap companies in various sectors. Opting for NIFTY Midcap 150 index investment through Index Funds and ETFs can offer convenience, ease and cost-effectiveness.

If you are looking to get started on your investment journey, download the Moneyfy App from Tata Capital to manage your investments on the go. 

FAQs

What is the Nifty 100 index?

The Nifty 100 index represents the top 100 companies listed on the National Stock Exchange (NSE) by market capitalisation, offering a mix of large-cap stocks across various sectors.

What is the Nifty Midcap 150 index?

The Nifty Midcap 150 index tracks the performance of 150 mid-sized companies listed on the NSE, providing exposure to midcap stocks that often have high growth potential but carry relatively higher risk.

How do Nifty 100 and Nifty Midcap 150 differ in terms of risk?

The Nifty 100 is less risky due to its focus on large, established companies. The Nifty Midcap 150, with mid-sized firms, is more volatile but offers greater potential for returns during favourable market conditions.

Which index offers better long-term growth potential?

The Nifty Midcap 150 generally offers better long-term growth potential due to the higher growth trajectory of mid-sized companies. However, this comes with increased risk compared to the relatively stable Nifty 100.

Is the Nifty 100 a safer investment compared to Nifty Midcap 150?

Yes, the Nifty 100 is safer as it includes large-cap companies with stable earnings and lower volatility. In contrast, the Nifty Midcap 150 involves higher risk but could yield higher rewards in the long term.