Midcap indices have limited utility for meaningful historical comparisons and analysis due to their “mechanical” and “restrictive” nature, analysts at Kotak Institutional Equities (KIE) said in a report released on Tuesday. The Nifty Midcap 150 Index comprises 150 stocks based on full-float market capitalisation (market cap).
By definition, stocks that rank between 101 and 250 by full-float market capitalisation are classified as midcap stocks in India. According to KIE’s analysts, the methodology results in frequent changes in index composition as stock prices and, consequently, market cap, move over time.
This, in turn, limits the index's relevance for historical comparisons and can lead to the over- or under-representation of sectors depending on market sentiment. Only 46 stocks have been part of the Nifty Midcap 150 Index consistently from 2021-22 (FY22) through the first half of FY27 (H1-FY27), while as many as 275 unique stocks were part of the index during FY22-26, the report said.
“Such frequent changes make it difficult to use the index for meaningful comparisons of future earnings growth with historical earnings growth, or future valuation multiples with historical multiples,” wrote Sanjeev Prasad, managing director & co-head at Kotak Institutional Equities in this note coauthored with Anindya Bhowmik and Sunita Baldawa.
The restrictive nature of the index, in terms of the number of stocks it comprises, also means that one or a few sectors can have an outsized influence on its overall earnings growth and valuations, the analysts wrote. "Several stocks from a “popular” sector can enter the index simultaneously, while sectors that are out of favour may become under-represented," the report said.
Meanwhile, historically there have been periods where the mid-and small-cap stocks have caught investors' fancy. Between H1FY24-H1-FY25, the KIE note said, the mid- and smallcap space saw a 'terrific returns' for most parts. The Nifty Midcap 150 Index soared 97 per cent over March 2023-September 2024 with almost all sectors contributing to the index's strong performance over this period.
The index has moved 2.6 per cent since then despite a terrific rally since April-May 2026, the KIE note said. Return analysis KIE's analysis of the Nifty Midcap 150 Index's performance over FY22-26 also gives some interesting insights. Around 27 stocks accounted for over 50 per cent of the index's performance in any half-year period over H1FY22-H2-FY26.
Several stocks that were among the top contributors—defined by Kotak as those accounting for more than 5 per cent of the index’s movement in a half-year period—were no longer part of the index after some time. The churn has also resulted in significant movement of stocks across market-cap-based indices.
According to the analysis, 41 erstwhile mid-cap stocks graduated to the Nifty 50 or Nifty Next 50 indices, while 129 erstwhile mid-cap stocks either moved to the Nifty Smallcap 250 Index or were no longer part of any index. Disclosure: Entities controlled by the Kotak family have a significant shareholding in 'Business Standard'.