Last Updated on June 3, 2022 at 11:17 pm
Axis Nifty Midcap 50 Index fund will track the Nifty Midcap 50 Total Returns Index In this review, we shall find out how this index compares in terms of reward and risk with Nifty Midcap 150 and Nifty Next 50.
According to the NSE, “NIFTY Midcap 50 includes top 50 companies based on full market capitalisation from NIFTY Midcap 150 index with preference given to
those stocks on which derivative contracts are available on National Stock Exchange (NSE)”. And, “NIFTY Midcap 150 represents the next 150 companies (companies ranked 101-250) based on full market capitalisation from NIFTY 500”.
At first, sight, taking the top 50 stocks from a volatile universe seems like a good idea. We expect the Midcap 50 Index to outperform the Midcap 150 Index at slightly higher volatility.
The 5-year rolling returns of Nifty Midcap 50 TRI vs Nifty Midcap 150 TRI vs Nifty Next 50 TRI is shown below.
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The Midcap 50 index has often underperformed the MIdcap 150 and Nifty Next 50 Indices. Also it is must be noted that only in the last few months, both midcap indices have managed to outperform Nifty Next 50.
The 5-year rolling risk (standard deviation) of Nifty Midcap 50 TRIvs Nifty Midcap 150 TRI vs Nifty Next 50 TRI is shown below.
The Midcap 50 index for the most part of its history given lower or comparable returns to the other two indices at higher volatility over 5 years.
The corresponding data over 10 years is shown below.
The observations are largely the same. There is no data to suggest to Nifty Midcap 50 is a better choice than Nifty Midcap 150 or Nifty Next 50. Of course, things may change in future, but we only change our impressions or opinions when the data changes.
Note for Nifty Next 50 Investors: We had recently (Oct 2021) pointed out that Nifty Midcap 150 beats Nifty Next 50 for the first time. You can see from the above graphs that Nifty Next 50 has given a return and risk comparable to Nifty Midcap 150 for the most part of its history.
Yes, Nifty Next 50 can be frustrating to hold wrt Nifty 50 (as pointed out repeatedly) and also recently: Is it time to exit from Nifty Next 50? While investors should definitely ask if NN50 is worth the investment compared to Nifty 50, there is still not enough evidence to suggest that the Midcap 150 (or 50) is a better choice in our quest to get better returns than the Nifty.
At the time of writing NN50 remains a simpler choice than passive funds in the Midcap segment. Also, see Warning! Nifty Next 50 is NOT a large cap index!
It would be naive to presume the current outperformance of Midcao 150 vs NN50 will last forever. Just as it is naive to presume NN50 returns will always match up to Midcap 150. See: Do not expect double-digit returns from Nifty Next 50 index funds!
Today it may seem a distant memory but from early 2018 to March 2020, the Mid cap (and small cap) segments moved south along with NN50 while the Nifty alone moved up with the support of a few stocks. So frustration should be expected for any index beyond the Nifty 50 or Sensex (30).
The simple truth is, we have no clue what the future brings. It is up to the investor to decide whether choices should be based on the last few month’s performance or on longer past trends. Either way, it is a gamble. The Indian stock market is evolving thick and fast and no one has a crystal ball to see into the future. This is why it is better to attribute success to good luck and failure to bad luck. Either way, we have to dust ourselves and move on.
In summary, there is no compelling evidence to invest in Axis Nifty Midcap 50 Index fund. It is more volatile than both the Nifty Midcap 150 and the Nifty Next 50 and not as rewarding consistently. The future may turn out to be different from the past. If that is the case for long enough, our opinions will have to change. Not before.