midcaps: Midcaps begin to outshine larger peers amid broader rally on D-St

ET Intelligence Group: Midcaps are now beginning to outrun front-liners as investors buy into ‘bottoms-up’ investment ideas that are not inextricably linked to the pace — and shape — of the macro-economic recovery.

The market value of the Nifty Midcap 100 index rose 26 per cent since the beginning of the year to Rs 25.62 lakh crore, ETIG data showed. Market value of the Nifty 50 index rose 7 per cent in the same period to Rs 116 lakh crore, accounting for nearly 56 per cent of India’s total market capitalisation. The previous peak of the Nifty 100 Midcap was Rs 23 lakh crore in January 2018.

In the past one year, the Nifty Midcap 100 has outperformed Nifty 50 by 32 per cent. As a result, the price ratio of the Nifty Midcap 100 and Nifty 50 has reached a five-year average of 1.65, still lower than the peak of two times in January 2018. So, there is a strong case for investors to hike exposure to the midcap segment. The largest weighted stocks in the Nifty Midcap stocks are

Total Gas (2.9 per cent), Shriram Transport (2.38 per cent), Chola Investment (2.13 per cent), (2.10 per cent) and (2.01 per cent).

The ‘B’ group market capitalisation as a share of the total has been improving in the last six months and reached 3.69 per cent in May 2021, data from BSE showed. In the last five years, ‘B’ group market-cap averaged around 10 per cent of total BSE’s capitalisation. Balance sheets of midcap companies are typically more leveraged compared to their large-cap counterparts. Therefore, their profitability is magnified in a low interest rate environment.

A sharp pick-up in the market value of midcap stocks has bridged the huge divergence between the growth in market cap of large-cap and midcap stocks in the last four years. The 10-year annualised market-cap growth of Nifty 50 and Nifty Midcap are near identical, with returns of 13 per cent.