Nifty Midcap 150 Quality 50 Index: Has Quality Lost Its Edge? 10Aug2025
A Look at Calendar Year Returns
(The views expressed here are for information purposes only and should not be construed as a
recommendation or investment advice. While the author is a CFA Charterholder
with nearly 25 years of experience in financial markets, this content
is intended to share general insights and does not constitute financial
guidance. Please consult your financial
adviser before taking any investment decision. Safe to assume the author
has a vested
interest in stocks / investments discussed if any.)
Note: Before you read this blog, don't forget to read "Decoding the Nifty Midcap 150 Quality 50 Index: A Midcap Strategy Based on Fundamentals" I published a few days ago.
Over the past few years, mid-cap stocks have had a terrific run -- especially those from capital-heavy, high-debt sectors riding the wave of government capex, defence spending and economic recovery.
But not all midcaps have participated equally. This brings us to a lesser-followed index: the Nifty Midcap 150 Quality 50. A comprehensive analysis of the index was done a few days ago.
In this post, I take a closer look at the index's calendar year returns and the dynamics of the quality factor in the Indian context. Spoiler: quality hasn't had a great run lately, but there's more nuance beneath the surface.
But not all midcaps have participated equally. This brings us to a lesser-followed index: the Nifty Midcap 150 Quality 50. A comprehensive analysis of the index was done a few days ago.
In this post, I take a closer look at the index's calendar year returns and the dynamics of the quality factor in the Indian context. Spoiler: quality hasn't had a great run lately, but there's more nuance beneath the surface.
Chart showing calendar year returns: Parent versus Child:
(Parent index here is Nifty Midcap 150, from which child index Nifty Midcap 150 Quality 50 is constructed)
Observations from the above chart:
1. Performance Balance Over 21 Years:
Over the 2005–2025 period, the Nifty Midcap 150 Quality 50 index outperformed its parent index in 11 out of 21 years.
That's almost a 50-50 split, suggesting no clear long-term dominance of one over the other.
However, the yearly return differential in some years is significant (for example, in 2023: +16% for parent vs child).
2. Recent Underperformance Is Consistent:
From 2021 to 2025, the child index underperformed the parent every single year.
Even in 2022, when the parent was barely positive (+4%), the child fell (-9%).
This consistent underperformance in recent years suggests that the “quality” factor may have fallen out of market favor—possibly due to a shift in investor appetite toward growth or momentum themes during that period.
3. Fund Launch Timing vs Theme Performance:
It is worth noting, back in 2021, DSP Mutual Fund launched a thematic fund based on Nifty Midcap 150 Quality 50 index and ever since in the index has been grossly underperforming its parent index.
Over the 2005–2025 period, the Nifty Midcap 150 Quality 50 index outperformed its parent index in 11 out of 21 years.
That's almost a 50-50 split, suggesting no clear long-term dominance of one over the other.
However, the yearly return differential in some years is significant (for example, in 2023: +16% for parent vs child).
2. Recent Underperformance Is Consistent:
From 2021 to 2025, the child index underperformed the parent every single year.
Even in 2022, when the parent was barely positive (+4%), the child fell (-9%).
This consistent underperformance in recent years suggests that the “quality” factor may have fallen out of market favor—possibly due to a shift in investor appetite toward growth or momentum themes during that period.
3. Fund Launch Timing vs Theme Performance:
It is worth noting, back in 2021, DSP Mutual Fund launched a thematic fund based on Nifty Midcap 150 Quality 50 index and ever since in the index has been grossly underperforming its parent index.
This is a well-known industry phenomenon: Mutual fund houses often launch thematic / strategic funds when a theme has already played out and is peaking in popularity, making it attractive for marketing—but not always for returns.
This phenomenon is sometimes called "performance-chasing product design"—and it often marks the fag end of a strong run in that theme.
This phenomenon is sometimes called "performance-chasing product design"—and it often marks the fag end of a strong run in that theme.
4. Implication for Investors:
It’s fair to say that historical returns and timing of product launches often don’t align well for retail investors.
Evaluating an index or a fund based on long-term factor performance (not recent hype) and macro market context might lead to better decision-making.
Quality edge or lack thereof
While "smart" beta strategies like Quality can perform well over a full cycle, their performance tends to be cyclical, and often goes through multi-year periods of underperformance, as seen from 2021–2025. These periods test the conviction of investors who buy into the factor story.
Market Shift Toward Capital-Intensive Sectors:
Over the past three to four years, there’s been a notable rotation in the Indian equity markets away from traditional quality names and towards high-debt, capital-intensive sectors. These include:
> PSU banks
> Infrastructure
> Capital goods
> Power and utilities
> Railways and defense
> Real estate and construction-related segments
These sectors often:
Do not rank high on quality screens, because they carry higher debt, lower return ratios and volatile cash flows.
Benefit disproportionately from government capex, PLI (production-linked incentive) schemes and domestic economic momentum.
Tend to outperform during economic upcycles and risk-on environments.
As a result, indices like Nifty Midcap 150 Quality 50, which systematically exclude such companies based on their lower "quality" scores, have missed out on large portions of this rally.
This sectoral rotation helps explain:
While "smart" beta strategies like Quality can perform well over a full cycle, their performance tends to be cyclical, and often goes through multi-year periods of underperformance, as seen from 2021–2025. These periods test the conviction of investors who buy into the factor story.
Market Shift Toward Capital-Intensive Sectors:
Over the past three to four years, there’s been a notable rotation in the Indian equity markets away from traditional quality names and towards high-debt, capital-intensive sectors. These include:
> PSU banks
> Infrastructure
> Capital goods
> Power and utilities
> Railways and defense
> Real estate and construction-related segments
These sectors often:
Do not rank high on quality screens, because they carry higher debt, lower return ratios and volatile cash flows.
Benefit disproportionately from government capex, PLI (production-linked incentive) schemes and domestic economic momentum.
Tend to outperform during economic upcycles and risk-on environments.
As a result, indices like Nifty Midcap 150 Quality 50, which systematically exclude such companies based on their lower "quality" scores, have missed out on large portions of this rally.
This sectoral rotation helps explain:
> why the child index has underperformed since 2021
> why broad-based midcap indices, which include cyclical and leveraged names, have outpaced the quality-focused basket
That factor performance is cyclical—“quality” factor is likely to do well in economic downturns and in periods of downright pessimism, but can lag during risk-on or capex-led booms.
Closing Thoughts
The Nifty Midcap 150 Quality 50 index offers a structured, fundamentals-driven approach to midcap investing. While its recent performance has lagged behind broader indices, especially amid a market tilt toward capital-intensive and high-debt sectors, the quality factor remains relevant for patient, long-term investors in their efforts for resilient portfolio construction.
As with all strategies, its effectiveness tends to be cyclical and influenced by broader market trends.
This analysis is purely observational and does not constitute investment advice.
This analysis is purely observational and does not constitute investment advice.
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References:
NSE market watch - DSP Nifty Midcap 150 Quality 50 ETF (for volume and traded value data)
iNAV data (indicative NAV or intra-day NAV) summary of DSP MF ETFs including DSP Nifty Midcap 150 Quality 50 ETF
Nifty Midcap 150 Quality 50 Index factsheet - PDF for Jul2025
India Passive funds DSP Nifty Midcap 150 Quality 50 ETF
India Passive funds DSP Nifty Midcap 150 Quality 50 Index fund direct plan
Screener.in Nifty Midcap 150 Quality 50 - individual stocks, returns and their valuation ratios are available
DSP MF - DSP Nifty Midcap 150 Quality 50 ETF - NFO product presentation
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