Continuing the rally, the midcap index has outperformed benchmarks in August as well after July. In August, the Nifty Midcap index surged over 6 percent against a 3.5 percent rise in Nifty. Similarly, in July, the midcap index advanced 12 percent versus an 8.7 percent jump in Nifty.
Even in September till now, the Nifty Midcap index has added 2.5 percent as compared to a 1 percent rise in the benchmark Nifty.
In 2022 YTD, the midcap index has added 6 percent versus a 3 percent rise in Nifty while in the last 1 year as well, the midcap index has soared 9 percent whereas the nifty has risen 2.5 percent.
However, during the last five years, midcaps have underperformed the benchmark by 10 percent and small-caps by 44 percent.
The recent outperformance in midcaps was triggered mainly by better performance of midcap constituents as investors lapped up midcap stocks after the recent correction at cheaper valuations. Also the recovery in market sentiment added to the gains.
But despite the recent outperformance, is it time to accumulate midcap stocks, or should you stick to largecap peers?
Most experts believe that investors should have a mix of large-cap and mid-cap stocks in their portfolio to manage growth and risk together.
Axis Securities advises investors to pick stocks after doing a thorough analysis of the company’s financials and its industry standing and then pick quality stocks that are available at reasonable valuations irrespective of their market cap.
Meanwhile, Sanjay Chawla, Chief Investment Officer – Equity, Baroda BNP Paribas Mutual Fund believes investors should allocate to mid-caps and small caps based on their risk appetites and investment horizons.
"Both these categories tend to be more volatile in the short-term than large caps. However, over the long term, the mid and small caps have the potential to outperform, as these companies tend to grow at a faster pace and get re-rated," Chawla said.
Mid and small caps have recovered smartly and outperformed large caps from COVID lows. Also, given a volatile global backdrop, large caps have the potential to offer relative stability. In our flexicap funds, we are overweight large caps," added the expert.
It is important to note that while midcaps provide greater outperformance than large caps; large caps provide steady and stable returns. Other experts also said that midcaps are fairly valued based on the current set of expectations for the future. However, this segment of the market can witness significantly higher volatility in business.
Experts suggest a disciplined approach to investing in good quality companies over the next few months can be a good strategy to make the most of the lower investor appetite for mid and small-cap companies during a tough macro environment.
One should prefer mid and small companies which offer a higher earnings growth trajectory compared to large companies can thereby significantly create more wealth over long periods of time but it is important that one needs to be cognizant of their risk appetite.
In August around 30 stocks gave positive returns while the remaining 20 were in the red. Of the 30, only 5 stocks gave double-digit returns during the month. Astral jumped the most, up 28 percent followed by a 19 percent jump in Escorts. Meanwhile, Dixon Tech added 17 percent, Tata Comm rose 15 percent and Indiamart IndiaMesh was up 11 percent.
Among losers, Tata Elxsi lost the most, down 13 percent followed by Mphasis, which fell 9 percent, Balkrishna Industries, down 7 percent and Natco Pharma, down 6 percent.
