Looking for mid cap, small cap value stocks & mid cap growth stocks? Here is an easy way out!

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If you are looking for mid cap and small cap value stocks or mid cap growth stocks, there is now an easy way to create a shortlist for further study. NSE has recently launched strategic indices based on Nifty 500 (100 large caps + 150 midcaps and 250 small caps) and Nifty 200 (100 large caps and 100 midcaps) . The Nifty 500 Value 20  picks 20 value stocks from the NIfty 500 and the Nifty 200 Quality 30 will pick 30 “quality stocks” from the Nifty 200. Here is how you can use these for your stock portfolio.

What are strategic indices?

Usual indices like the NIfty or Nifty Next 50 are based only the free float market capitalization of the stocks. Higher the market cap, higher the weight in the index. An alternative method of index construction is to actively choose stocks based on their low volatility, momentum, quality, alpha, value or a combination of these.

I have written multiple posts on this and also spoken about these:

How new stock investors can quickly start investing using NIFTY Multi-Factor Indices

Low volatility stock investing: Does it work? Higher returns at lower risk?

The strategic indices are also known as “smart beta” indices as they consider alternative risk factors not considered in the initial version of the Captial Asset Pricing Model (CAPM). For example, higher return at lower risk (see video above) and higher return based on momentum (which is against the hot hand fallacy). See this for more details:

So far the strategic indices were limited typically to the top 100 stocks of the Nifty. Now NSE has extended this to Nifty 200 (100 large caps + 100 midcaps) and Nifty 500 (100 large caps, 150 mid caps and 250 small caps)

Mid cap, Small cap value stocks & mid cap growth stocks: How to find easily

What is Nifty 500 Value 50 Index

Every six months, it looks for four parameters in the Nifty 500 stocks that are typical of “value”. That is a stock available at a price lower than its intrinsic value.

  1. Low Price to Book Value (undervalued wrt asset)
  2. Low Price to Earnings (undervalued wrt earnings)
  3. Low Price to sales  (undervalued wrt revenue)
  4. High dividend yield (a measure of value. Growth stocks pay fewer dividends that value stocks)

A weighted value score (25% each of above 4 points) is generated and the stock with the highest value score has the highest weight in the index. Source: NSE whitepaper on Nifty 500 Value 50

The latest factsheet of Nifty 500 Value 50 is available here

The top ten stocks by weight are (Dec 2018)

Company Name Weight %
Oil & Natural Gas Corporation Ltd. 6.05
Tata Steel Ltd. 5.55
Hindalco Industries Ltd. 5.44
Coal India Ltd. 5.35
Bharat Petroleum Corporation Ltd. 5.34
Vedanta Ltd. 5.29
Indian Oil Corporation Ltd. 5.21
Rural Electrification Corporation Ltd. 5.15
Hindustan Petroleum Corporation Ltd. 5.04
Oracle Financial Services Software Ltd. 4.94

How to use the Nifty 500 Value 50 Index?

There are two ways. You can use this method to create your own value score at screener.in and shortlist value stocks and study them further. Or you can use the latest list of stocks (see below) and treat it as a short list of large cap, mid cap and small cap stocks and then study them further before making a final choice.

Important: As shown below this index is pretty volatile and is not suitable for tracking like the lazy investing test stock portfolios The index will only have value stocks in it. However, as an investor, there is no need to sell overvalued stocks as long as there is nothing wrong with the company. So exercise caution.

Also, unlike a fund like ICICI Prudential Value Discovery, no qualitative assessment is available. So that is up to the investor.

This is the history of large cap: mid cap: small cap break up of the index (source above linked white paper)

This is the history of large cap: mid cap: small cap break up of the Nifty 500 Value 50 Index

This is the reason I think this index is a decent source of mid cap value stocks and small cap value stocks.

What is the Nifty 200 Quality 30 Index?

Every six months, this index looks for “quality” in the Nifty 200 index. A quality stock is one

  1. high ROE (return on equity a measure of profitability)
  2. low debt to equity ratio  (a measure of leverage)
  3. low EPS growth variability (consistency in performance)

These three factors are used in equal measure to create a “quality score” and stocks with the highest quality score get more weight. Source” NSE Whitepaper on Nifty 200 Quality 30

I would like to define a quality stock as a “growth stock” (irrespective of dividend yield) as the idea here is to look for stocks that have the potential to grow (see performance below). The latest factsheet of Nifty 200 Quality 30 is here and the full list of current stocks here (also see below)

Top 10 stocks of the Nifty 200 quality 30 (Dec 2018)

Company’s Name Weight(%)
HCL Technologies Ltd. 5.41
Hindustan Unilever Ltd. 5.39
Tata Consultancy Services Ltd. 5.38
I T C Ltd. 5.33
Infosys Ltd. 5.29
Asian Paints Ltd. 5.25
Britannia Industries Ltd. 4.94
Maruti Suzuki India Ltd. 4.27
Hero MotoCorp Ltd. 4.15
Colgate Palmolive (India) Ltd. 3.87

How to use the Nifty 200 Quality 30 Index?

Again there are two ways. Use the white paper and DIY screen for quality or growth stocks or use this as a shortlist. Unlike the N500Value 50 index, I think this is index is quite suitable for “lazy investing”.

That is, start with equal weights of the top 10 stocks (currently) and then as long as the stock in the index, keep buying more. When it leaves the index, sell and replace with a top 10 stock, rinse and repeat.

Rolling returns and rolling risk performance: 5 years

 Price Comparison of Nifty 500 Value 50 and Nifty 200 Quality 30 Indies

The value index is clearly “cyclic” and the quality index is a lot more consistent in outperformance. We need rolling returns support for further study.

5 year rolling return Comparison of Nifty 500 Value 50 and Nifty 200 Quality 30 Indies

The nifty largemidcap 250 is nifty 100 + nifty midcap 150. We will soon have an index fund from Motilal for this. Over 5Y, Nifty 500 Value 50 is too volatile with little consistency in outperformance. The Nifty 200 Quality 30 is much better.

5 year rolling risk Comparison of Nifty 500 Value 50 and Nifty 200 Quality 30 Indies

Have a look at the rolling risk (volatility) above! The Nifty 200 quality 30 has so much lower risk with return outperformance. This is again a demonstration of Low volatility stock investing: Does it work? Higher returns at lower risk? and choosing stocks that have traded close to their “all-time” high

Rolling returns and rolling risk performance: 10 years

Further evidence of the superiority of the Nifty 200 Quality 30 can be seen below

10 year rolling return Comparison of Nifty 500 Value 50 and Nifty 200 Quality 30 Indies

The Nifty 500 Value 50 also has performed much better but is not consistent enough.

 10 year rolling risk Comparison of Nifty 500 Value 50 and Nifty 200 Quality 30 Indies

The Nifty 500 Value 50 does not offer a reward commensurate with the higher risk. The Nifty 200 Quality 30, on the other hand, has displayed lower risk and higher returns consistently!

What should you do?

If you are interested, start with the Nifty 200 Quality 30 index as mentioned above, but read further and start small. Although the Nifty 500 value 50 is not suitable for tracking, it can be used to shortlist value mid cap and small cap stocks, provided you do a further qualitative and quantitative investigation before committing money

Large cap value stocks in Nifty 500 Value 50 (Dec 2018)

Bharat Petroleum Corporation Ltd.
Coal India Ltd.
Hindalco Industries Ltd.
Hindustan Petroleum Corporation Ltd.
Hindustan Zinc Ltd.
Indian Oil Corporation Ltd.
NHPC Ltd.
NMDC Ltd.
Oil & Natural Gas Corporation Ltd.
Oil India Ltd.
Oracle Financial Services Software Ltd.
Tata Motors Ltd.
Tata Steel Ltd.
Vedanta Ltd.

Mid cap value stocks in the Nifty 500 Value 50 (Dec 2018)

Bank of India
Canara Bank
Indian Bank
JSW Energy Ltd.
Mangalore Refinery & Petrochemicals Ltd.
National Aluminium Co. Ltd.
NLC India Ltd.
Power Finance Corporation Ltd.
Punjab National Bank
REC Ltd.
Reliance Capital Ltd.
Reliance Infrastructure Ltd.
Reliance Power Ltd.
Union Bank of India
Vakrangee Ltd.

Small cap value stocks in the Nifty 500 Value 50 (Dec 2018)

Allahabad Bank
Balrampur Chini Mills Ltd.
Chennai Petroleum Corporation Ltd.
DCM Shriram Ltd.
Greaves Cotton Ltd.
Gujarat State Fertilizers & Chemicals Ltd.
Hindustan Construction Co. Ltd.
IDFC Ltd.
India Cements Ltd.
Jet Airways (India) Ltd.
Jindal Saw Ltd.
JK Tyre & Industries Ltd.
Karnataka Bank Ltd.
PTC India Ltd.
Reliance Communications Ltd.
Sintex Plastics Technology Ltd.
Syndicate Bank
Tamil Nadu Newsprint & Papers Ltd.
UFLEX Ltd.
Unitech Ltd.
Vijaya Bank

Large cap growth stocks in Nifty 200 Quality 30 (Dec 2018)

Asian Paints Ltd.
Bajaj Auto Ltd.
Britannia Industries Ltd.
Coal India Ltd.
Colgate Palmolive (India) Ltd.
Dabur India Ltd.
Eicher Motors Ltd.
Havells India Ltd.
HCL Technologies Ltd.
Hero MotoCorp Ltd.
Hindustan Unilever Ltd.
Hindustan Zinc Ltd.
I T C Ltd.
Infosys Ltd.
Marico Ltd.
Maruti Suzuki India Ltd.
Oracle Financial Services Software Ltd.
Pidilite Industries Ltd.
Sun TV Network Ltd.
Tata Consultancy Services Ltd.
Tech Mahindra Ltd.
Titan Company Ltd.

Mid cap growth stocks in Nifty 200 Quality 30 (Dec 2018)

Ajanta Pharmaceuticals Ltd.
Castrol India Ltd.
Divi’s Laboratories Ltd.
Exide Industries Ltd.
Hexaware Technologies Ltd.
Indraprastha Gas Ltd.
Page Industries Ltd.
V-Guard Industries Ltd.

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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3 Comments

  1. Very informative article.
    Can you please conduct similar analysis for Nifty Alpha low vol 30, seems to combine best of both the worlds

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