How to Buy Nifty Midcap 150 Index
(This
is for information purposes only. This should not be construed as a
recommendation or investment advice even though the author is a CFA Charterholder. 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.)
Mid- and small-cap stocks have been the flavour of the Indian stock market for quite some time. Retail investors, especially, have taken a fancy to them.
Let us join the bandwagon and check out how to assess the performance of passive mutual funds based on popular midcap stock indices.
Most of the stock indices in India are from NSE or National Stock Exchange of India Limited, which is a premier stock exchange in India, closely followed by BSE Limited.
There are four broad market indices from NSE giving investors exposure to mid-cap stocks. They are:
Nifty Midcap 150 index, Nifty Midcap 100 index, Nifty Midcap 50 and Nifty Midcap Select.
There are some (the so-called) smart beta indices also, such as, Nifty Midcap 150 Quality 50 and Nifty Midcap 150 Momentum 50 that give investors exposure to a narrow set of mid-cap stocks.
Of these mid-cap oriented Nifty indices, we shall take up one index for performance assessment and that is, Nifty Midcap 150.
Nifty Midcap 50 has two passive funds with a combined AUM of less than Rs 300 crore; whereas two passive funds with a combined AUM of less than Rs 900 crore are tracking Nifty Midcap 100 index. No passive fund tracks Nifty Midcap Select.
The combined asset size of the 'smart beta' indices mentioned above is less than Rs 500 crore for each index. Hence, these mid-cap indices, with a smaller asset size, are ignored.
However, Nifty Midcap 150 index is the benchmark index for 12 passive funds (five ETFs and seven index funds) with a combined AUM of almost Rs 6,000 crore, which is sizeable attracting the attention of potential investors.
AUM is assets under management and all AUM data above are as on 31Mar2024. ETFs are exchange-traded funds and like stocks they trade on stock exchanges.
Let us dive deep and find out how investors can gain exposure to Nifty Midcap 150 Index provided they are interested in getting such an exposure. This is a follow-up blog to recent blogs penned by the author in the past few days. You can check them here and here.
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Related blogs on Indian Passive Funds:
NSE Emerging Indices Comparison 31Mar2024
India Passive Funds and Their Asset Size 29Apr2024
Guide to Tracking Error of Mutual Funds 27Apr2024
SEBI Categorization and Rationalization of Mutual Funds
Equity ETFs and Equity Index Funds Compared 05Feb2024
Nifty 50 Index Yearly Movement 31Dec2023
Analysis of Nifty 100 Low Volatility 30 Index (passive funds) 12Sep2023
EPFO Investments in Stocks Via ETFs (passive funds) 18Mar2023
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Adani Stocks Meltdown and Nifty Next 50 Index (passive funds) 15Feb2023
Compare ETFs based on S&P 500, Russell 2000 and MSCI EM (passive funds) 26May2022
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India Equity ETFs Risks and Returns (passive funds) 15Jan2022
Passive Investing - ETFs and Index Funds (passive funds) 04Aug2021
Nifty 50 Index Evolution 2011 to 2021
2. Nifty Midcap 150 Index and Its Construction
Nifty
Midcap 150 index represents 150 mid-cap companies (companies ranked 101-250)
based on full market capitalisation and they are taken from Nifty 500 index. Nifty Midcap 150 intends to measure the performance of mid market capitalisation companies (for more, click here).
A pictorial representation of select Nifty Indices is given below, which will help in understanding how Nifty Midcap 150 index is placed in the overall scheme of things:
Nifty Midcap 150 is rebalanced / reconstituted semi-annually (last working day of March and September). The index is calculated using free float market capitalisation and as the name suggests it has 150 mid-cap stocks.
The index was launched on 01Apr2016 with a base date of 01Apr2005.
3. Fundamentals
Table
1 presents the returns, risks and valuation measures of Nifty Midcap 150 index (all data as of 31Mar2024) >
One-year returns of the index are 57.5 percent, whereas on a 5-year basis, the annualised return is 23.3 per cent.
One-year standard deviation (a statistical measure of volatility) is lower compared to 5-year SD. The valuation measures, like, price-earning or P/E ratio, price-book value or P/B ratio and dividend yield, look expensive for the index.
4. Top 15 Stocks and Sectors
Table 2 provides details of top 15 stocks and sectors in the index (all data as of 31Mar2024)>
Top three stocks in the index are:
Max Healthcare Institute Ltd.
Indian Hotels Company Ltd.
Suzlon Energy Ltd.
Indian Hotels Company Ltd.
Suzlon Energy Ltd.
Top three sectors are:
Financial Services
Capital Goods
Healthcare
Capital Goods
Healthcare
As per Rupee Vest data, mid-cap stocks have a share of 87.5 per cent in the index, followed by small-cap stocks (6.5 per cent) and large-cap (6.0 per cent).
5. Passive Funds
Tables 3 and 4 present a snapshot of 12 passive funds that have a common benchmark index, namely, Nifty Midcap 150. Number of passive funds tracking the index are 12 only.
Key observations from table 3 and 4 are:
> total AUM of these 12 passive funds is Rs 5,957 crore, which is just 0.9 per cent of the total AUM of all equity passive funds of Rs 6.65 lakh crore
> Equity passive funds include equity ETFs & equity index funds
> there are five ETFs (combined AUM Rs 2,284 crore) and seven index funds (Rs 3,673 crore)
> as the name suggests, all 12 funds have 150 mid-cap stocks each
> majority of them are less than three years old; indicating AMCs or asset management companies want to encash retail investors' latest fad in mid- and small-cap stocks
> only one fund is more than five years old
> the size of their funds is negligible when compared to large-cap passive funds based on Sensex and Nifty 50
> they are open-end funds; all index funds are regular plans
> Aditya Birla Sun Life Nifty Midcap 150 Index Fund has an exit load of 0.25 per cent if redeemed within 15 days of investment
> SBI Nifty Midcap 150 Index Fund too has an exit load of 0.25 per cent if redeemed within 15 days of investment
> it's better to choose funds with reasonable expense ratio and low tracking error because both are costs to investors
> there is not much to choose among these passive funds based on past returns and risk measures, because all have similar risk-return characteristics having exposure to 150 mid-cap stocks
Table 5: Expense ratios of direct plans:
With the help of the table, one can compare expense ratios of regular plans versus their direct plan cousins.
One key thing to assess before investing in equity ETFs is whether the market price of ETF quoted on BSE and NSE is at a premium or discount to the NAV (net asset value) of the ETF declared regularly by the respective AMC or asset management company. More on this will be discussed in a later article.
6. Select Nifty Midcap 150 Funds
We are left with the following four passive funds after using the above filters:
a) Nippon India ETF Nifty Midcap 150: This has considerable volumes on NSE. The size of its assets at Rs 1,313 crore is decent. It's the oldest passive fund based on Nifty Midcap 150.
b) ICICI Pru Nifty Midcap 150 Index Fund-Direct plan / growth option: Its asset size is Rs 358 crore, but it's less than three years old.
c) Motilal Oswal Nifty Midcap 150 Index Fund-Direct plan / growth option: This has got the highest assets of Rs 1,404 crore among the peers. It was launched more than four years ago.
d) Nippon India Nifty Midcap 150 Index Fund-Direct plan / growth option: Its has an AUM of Rs 1,163 crore and it's more than three years old.
c) Motilal Oswal Nifty Midcap 150 Index Fund-Direct plan / growth option: This has got the highest assets of Rs 1,404 crore among the peers. It was launched more than four years ago.
d) Nippon India Nifty Midcap 150 Index Fund-Direct plan / growth option: Its has an AUM of Rs 1,163 crore and it's more than three years old.
The above four passive funds have lower expensive ratios and low tracking errors (see table 5 above for expense ratios of direct plans of these funds).
Tracking error is also an important factor while considering passive funds.
7. Action Button
The big picture is India's growth prospects look good, provided we don't shoot ourselves in the foot. It is expected economic growth will translate into decent growth for Indian companies -- though there is no such guarantee.
The growth rates of mid-cap stocks are much better versus the large-cap stocks in recent years. However, this is already reflected in the high valuation measures of Nifty Midcap 150 index (Section 3 above).
As has been highlighted several times in the past (see here and here), most retail investors are better of sticking to passive funds based on broad market indices, like, BSE Sensex, Nifty 50 and Nifty Next 50.
Next in the hierarchy of passive funds, investors can consider passive funds based on other broad market indices, like BSE 500, Nifty 100 and Nifty 500.
However, investors should do their homework before investing and consider key factors, such as, decent asset size, low expense ratios, low tracking errors, fund's long track record and high
trading volumes & low bid-ask spreads (in case of ETFs).
Retail investors with high risk appetite and who want exposure to mid-cap stocks may consider a few of the passive funds mentioned in Section 6 above.
Depending on one's outlook for growth prospects, retail investors may look for investing systematically using dollar-cost (rupee-cost) averaging concept.
In the near term, there is a risk of losing one's principal; however, in the long term of five years and more, equity mutual funds may deliver inflation-beating returns.
This is purely for educational purposes and should not be construed as recommendation or investment advice. Investors shall always consult their own financial adviser and must consider their unique personal situation, investment needs, return expectations and risk appetite before investing. The author has no exposure to mid-cap oriented equity funds.
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References and additional data:
Irises (1889) by Vincent van Gogh - Getty Images
Nifty Indices - Index factsheet
Nifty Midcap 150 index - research paper 01Sep2021 PDF
Nifty Midcap 150 factsheet PDF
Nippon India ETF Nifty Midcap 150 ETF (MID150BeES)
Compare five Nifty Midcap 150 funds MS
Compare five Nifty Midcap 150 funds VR1
Compare five Nifty Midcap 150 funds VR2
Compare five Nifty Midcap 150 funds VR3
NSE market watch ETFs - to access volume and trade data
UTI Nifty Midcap 150 ETF - product presentation and factsheet Mar2024
Rupee Vest data on Nifty Midcap 150 >
Nifty Midcap 150 factsheet 31Mar2024 >
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Disclosure: I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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