Nifty Midcap 150 beats Nifty Next 50 for the first time

Published: October 10, 2021 at 7:08 am

The March 2020 crash has been a turning point for midcap stocks. The stock universe represented by Nifty Midcap 150 was on the downtrend from early 2018 has zoomed past Nifty 50 and Nifty Next 50 indices. Long-term Nifty Midcap 150 TRI returns (including dividends) are higher than Nifty Next 50 TRI returns for the first time!

This is the evolution of Nifty Midcap 150, Nifty Next 50 and Nifty 50 total return indices from March 23rd 2020 (bottom of the crash). The midcap index has gained 186% compared to 139% gains for Nifty 50 and 136% for Nifty Next 50.

Nifty Midcap 150 TRI vs Nifty 50 TRI vs Nifty Next 50 since March 2020
Nifty Midcap 150 TRI vs Nifty 50 TRI vs Nifty Next 50 since March 2020

The trailing returns as of October 8th 2021, are tabulated below. The midcap index has outperformed the other two indices comfortably.

TenureNIFTY 50 – TRINIFTY NEXT 50 – TRINifty Midcap 150 – TRI
153.0558.3982.15
228.1629.1944.22
321.4320.1228.51
417.1012.3917.48
516.9314.1718.44
615.4715.1218.98
713.8815.9019.06
816.2019.2824.08
914.9917.6420.54
1015.2417.7120.24

For durations above five years, this outperformance wrt Nift Next 50 is for the first time (and therefore a one-off at the time of writing). This can be seen by plotting rolling returns over every possible 5,6,7,8,9 and 10 years from the inception of the Midcap index (April 1st 2005).

Five-year rolling returns


Nifty 50 TRI vs Nifty Next 50 TRI Five year rolling returns (annualized %)
Nifty 50 TRI vs Nifty Next 50 TRI Five year rolling returns (annualized %)

Nifty Next 50 is currently going through a bad patch when compared to the NIfty, but it is not for the first time, as one can see from above.

Nifty Midcap 150 TRI vs Nifty Next 50 TRI Five year rolling returns (annualized %)
Nifty Midcap 150 TRI vs Nifty Next 50 TRI Five year rolling returns (annualized %)

We can see how the midcap index has pulled away from Nifty Next 50 since March 2020. This is the first such outperformance in a bull market.

 

Six-year rolling returns

Nifty 50 TRI vs Nifty Next 50 TRI six year rolling returns (annualized %)
Nifty 50 TRI vs Nifty Next 50 TRI six-year rolling returns (annualized %)

The current patch of underperformance wrt Nifty 50 is the second such instance – the first before the 2013 bull run.

Nifty Midcap 150 TRI vs Nifty Next 50 TRI six year rolling returns (annualized %)
Nifty Midcap 150 TRI vs Nifty Next 50 TRI six-year rolling returns (annualized %)

Seven-year rolling returns

Nifty 50 TRI vs Nifty Next 50 TRI seven year rolling returns (annualized %)
Nifty 50 TRI vs Nifty Next 50 TRI seven-year rolling returns (annualized %)

Even over seven years, the Nifty Nifty 50 did not beat the NIfty 50 in the past. One must keep that in mind and not get swayed by the recent outperformance.

Nifty Midcap 150 TRI vs Nifty Next 50 TRI seven year rolling returns (annualized %)
Nifty Midcap 150 TRI vs Nifty Next 50 TRI seven-year rolling returns (annualized %)

The recent midcap outperformance is now clear. The trend will become more prominent over eight, nine and ten-year durations, as seen below.

Eight-year rolling returns

Nifty 50 TRI vs Nifty Next 50 TRI eight year rolling returns (annualized %)
Nifty 50 TRI vs Nifty Next 50 TRI eight-year rolling returns (annualized %)
Nifty Midcap 150 TRI vs Nifty Next 50 TRI eight year rolling returns (annualized %)
Nifty Midcap 150 TRI vs Nifty Next 50 TRI eight-year rolling returns (annualized %)

Nine-year rolling returns

Nifty 50 TRI vs Nifty Next 50 TRI nine year rolling returns (annualized %)
Nifty 50 TRI vs Nifty Next 50 TRI nine-year rolling returns (annualized %)
Nifty Midcap 150 TRI vs Nifty Next 50 TRI nine year rolling returns (annualized %)
Nifty Midcap 150 TRI vs Nifty Next 50 TRI nine-year rolling returns (annualized %)

Ten-year rolling returns

Nifty 50 TRI vs Nifty Next 50 TRI ten year rolling returns (annualized %)
Nifty 50 TRI vs Nifty Next 50 TRI ten year rolling returns (annualized %)
Nifty Midcap 150 TRI vs Nifty Next 50 TRI ten year rolling returns (annualized %)
Nifty Midcap 150 TRI vs Nifty Next 50 TRI ten year rolling returns (annualized %)

For the last year or so, long-term Nifty Midcap 150 TRI returns have been higher than Nifty Next 50 TRI.

What do these results mean, and what should investors do? Investors like to see something good and start investing in it. And once they start, they don’t want to be told that they are not investing in the best!

If anything, the above graphs reiterate the adage that everyone knows, but no one takes seriously: past performance is not an indication of future performance.

Now, this cuts both ways: In early 2020, Nifty Next 50 was a superior index compared to Nifty Midcap 150. by late 2021, we know it is not always true.

This does not mean the midcap index will consistently outperform Nifty Next 50! We should expect cyclic behaviour from the two indices – one is on top at one time and another on top another time. So this outperformance could end as abruptly as it began.

Inspite of the recent underperformance wrt Nifty, the long-term risk-reward still favours some exposure to Nifty Next 50 (who knows, that might change too!).

However, as more and more investors and institutions flock to the stock market, the market depth increases and the volatility (and therefore returns) of Nifty Next 50 may come down in future. Also, see: Do not expect double-digit returns from Nifty Next 50 index funds!

If you are investing in a Nifty Next 50 index fund, we recommend continuing it. There is no need for either active or passive midcap fund exposure. See: Myth Busted: Active mid cap mutual fund managers can easily beat the index. And Not all index funds are the same! Beyond top 100 stocks tracking errors are huge!

At the very least, it will take a few more years to judge the efficacy of passive midcap funds. There is no point hanging around until then. Nifty Next 50 gets the job done well (but with higher risk than the Nifty).

One reader said, “I am worried about the stocks in Nifty Next 50. I think they are the reason for the underperformance”. Again this cuts both ways: stocks that graduate from the Midcap 150 move to Nifty Next 50  (momentum), and stocks that fail to make the cut in the Nifty moved down to Nifty Next 50.  We have no control over this. If the stocks in a mutual fund bother you, 100% direct equity (stocks) is recommended. Then you have complete control and the chance to own up to your mistakes.

Another reader asks, “I have only one fund – Nifty index. Can I include a midcap index fund instead of the Nifty Next 50?” In our opinion, it is still too early to consider the midcap (or small cap) passive funds as worthy of investing. The tracking errors are too high.  If you don’t like the Nifty Next 50 (because of its recent underperformance), stick to a Nifty (or Sensex) fund. You will not miss out on anything.

Do share if you found this useful

Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 640 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 2525 investors and advisors are part of our exclusive Facebook Group! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 585 salaried employees, entrepreneurs and financial advisors are part of our exclusive Facebook Group! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos in an exclusive Facebook Group!   
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored three print books, You can be rich too with goal-based investing (CNBC TV18), Gamechanger, Chinchu Gets a Superpower! and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps