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Nifty 100 vs Nifty Midcap 150: Which index should you pick for the long term?

Nifty 100 vs Nifty Midcap 150: Which index is the better long-term investment? Our analysis reveals that while the Nifty Midcap 150 has outperformed the Nifty 100 in recent years, particularly in the last five, historical data shows a more nuanced picture. The Midcap index tends to excel during bull runs but underperforms during market corrections. With higher returns and similar volatility over a 20-year period, the Midcap 150 seems attractive. However, investors should consider both indices as part of a diversified portfolio strategy, understanding that Midcap outperformance is largely driven by recent trends. We explore key metrics, rolling returns, and the growing popularity of index funds tracking these indices to help you make an informed decision.

CM Team3 min read
Quick Facts
Which index is better for long-term investment, Nifty 100 or Midcap 150?
The Nifty Midcap 150 has shown significantly higher CAGR over nearly two decades and outperformed the Nifty 100 in 12 of 20 years. Recent returns highlight this, with the Midcap 150 rallying 48% vs. the Nifty 100's 35.5% over the same period. However, the Midcap 150 underperformed during market corrections, like the 2008 crash, where it fell 65% vs. the Nifty 100's 53%.
Why has the Midcap 150 outperformed the Nifty 100 recently?
The Midcap 150's outperformance is largely due to strong earnings growth in the last five years, which contributed to a cumulative 59% advantage over the Nifty 100. This trend aligns with its tendency to outperform in bull markets while underperforming during broad market weakness, as noted in the analysis.
How do the volatility levels of Nifty 100 and Midcap 150 compare?
The article states the Midcap 150 has 'comparable volatility to the Nifty 100 large-cap index,' indicating similar risk profiles despite differing return patterns. This suggests both indices offer similar volatility but with distinct performance trajectories over time.

The post’s title was a question we received from the folks at Mint. Our response to this question was subsequently published on livemint.com.

As the livemint article says, the recent returns of the Midcap 150 index have been significantly stronger than the Nifty 100:

“The trend of outperformance has continued over the past year. The Nifty Midcap 150 has rallied an impressive 48 percent, significantly outpacing the Nifty 100, which surged over 35.5 percent. In comparison, the benchmark Nifty rose by 30 percent during the same period, making the midcap index the clear winner.”

Here’s a slightly more expanded look at comparing two Nifty indices beyond their recent returns.

Summary Metrics Nifty 100 vs Nifty Midcap 150

This looks like a slam dunk favouring the midcap index, given that it shows a significantly higher CAGR over nearly two decades with comparable volatility to the Nifty 100 large-cap index.

Calendar Year Returns: Nifty 100 vs Nifty Midcap 150

Chart below looks at the calendar year returns over that time frame.

The Nifty Midcap 150 leads the Nifty 100 in 12 of the 20 years shown here. But also note the years it trailed, especially when it was down 65% in 2008 compared to 53% for the Nifty 100. In 2018, it was down 13% while the large-cap index was up 3%.

1-year Rolling Return: Nifty 100 vs Nifty Midcap 150

Chart below compares the 1-year rolling return of the two indices. The shaded regions indicate the times when each index was ahead of the other. The summary metrics table above summarises this information by showing the Midcap 150 index was ahead nearly 61% of the time over the two decades from 2005 to YTD 2024.

The rolling return chart shows that the Midcap 150 index tends to outperform in bull runs and underperform the Nifty 100 during market corrections.

So far, everything points in favour of the Midcap 150 index. But things get interesting when you consider different slices of time.

Five-year Time Slices

Breaking the nearly two-decade period into four non-overlapping slices unearths an interesting insight. The two indices are not too far apart for the first three of the four slices. The largecap index led the Midcaps from 2005 to 2009, followed by the Midcaps going ahead in the next. The two were almost identical from 2015 to 2019, largely because the Midcap 150 had a harder fall in 2018 and a slower recovery in 2019.

But the last five years have been where the Midcap index has blown the Largecaps out of the water, ahead by a cumulative 59%!

A big part of Midcap outperformance over Large caps is largely because of the last five years.

Index Mutual Funds and ETFs

The recent popularity of the Midcaps is also evident in the fact that there are now 10 Index Mutual Funds / ETFs tracking the Midcap150 index, compared to 8 that track the Nifty 100.

Seven of the ten funds and ETFs tracking the Nifty Midcap 150 index have been launched within the last three years. In comparison, of the 8 Nifty 100 index funds and ETFs, 2 have a 10-year track record, 3 have a five-year track record, and 4 have a three-year track record.

Conclusion: Not Either / Or

The Midcap150 index has enjoyed exceptional performance over the past five years, largely due to strong earnings growth; it tends to underperform during periods of broad market weakness. This contrasts with the Nifty100 index, which has a longer track record through various market cycles. Investors can access both indices, but it’s crucial to understand that the Nifty100 index funds have experienced more market ups and downs than the Midcap150 funds. Rather than viewing the indices as mutually exclusive, investors should consider allocating to both as part of a well-considered asset allocation strategy, reviewing and adjusting their allocations annually to maintain their target weights.

Read the Livemint article