Nifty 100 vs Nifty Midcap 100: Which index should you pick for long term?

Even though markets have been consolidating in recent times, both Nifty 100 and Nifty Midcap 100 index hit their record highs in intra-day deals today, September 8, 2023. While both of these indices have multiple tailwinds and a healthy growth outlook, let's analyse which of these has a better long-term opportunity for investors.

Nifty Midcap 100 surged over 40 percent to its record high of 40,999.60, from its 52-week low of 29,200.20, hit on March 28, 2023.

Meanwhile, the Nifty 100 index has advanced around 19 percent to its record high of 19,834.90, from its 52-week low of 16,696.25, hit on March 16, 2023.

Looking at YTD returns, Nifty Midcap 100 is the better-performing index. The index has surged over 29 percent in 2023 YTD as against an over 8 percent rise in Nifty 100 and a 9.5 percent gain in Nifty in this period.

Both indices have given positive returns in 6 of the 9 months so far in the current calendar year.

Meanwhile, in the last one year as well, the Nifty Midcap 100 outperformed both the Nifty 100 and benchmark Nifty. Nifty Midcap 100 surged over 27 percent in the last 1 year while Nifty 100 advanced 9 percent. In comparison, the benchmark Nifty added 11.4 percent in this period.

Similarly, in the long term, Nifty Midcap 100 has given better returns between the two. Nifty Midcap 100 has rallied 148 percent in the last 3 years while Nifty 100 is up 73.5 percent and Nifty has advanced 75.5 percent.

Constituents

In the Nifty Midcap 100, 2 stocks have given multibagger returns in 2023 YTD whereas, there are no multibaggers in the Nifty 100 index this year so far.

REC and Power Finance have surged 130 and 113 percent, respectively, in the midcap index. Apart from these, 28 stocks have jumped between 20 and 90 percent this year so far. While Linde India, BHEL, and PB Fintech advanced 78 percent, 82 percent and 90 percent, respectively; IndiaMART InterMESH, Escorts, L&T Finance, Torrent Power, Oracle, Shriram Finance, Sona BLW, and Prestige Estates added between 40 and 50 percent each.

However, AB Fashion was the top loser in the midcap space, down almost 20 percent, followed by Yes Bank, down over 10 percent.

On the other hand, HAL was the top performer in Nifty 100, up 63 percent, followed by Tata Motors and Chola Finance, up over 60 percent each. NTPC, DLF, BEL, L&T, GAIL, Bajaj Auto, Havells India and Tata Power also rose between 30 and 45 percent each.

However, Adani Total Gas was the top loser, down 82.5 percent, followed by Adani Transmission and Adani Green, down over 67 percent and 48 percent, respectively.

Which index has a better long-term investment opportunity?

Vinod Nair, Head of Research at Geojit Financial Services, prefers Nifty Midcap 100.

Over the long run, the Nifty Midcap 100 offers better prospects, but for short- to medium-term investment horizons, largecaps are safer and more appealing, as the recent outperformance of midcaps has made the category susceptible, said Nair.

Alok Agarwal, Portfolio Manager, Alchemy Capital Management, likes both, Nifty 100 as well Nifty Midcap 100.

The Nifty 100 predominantly consists of largecap, blue-chip companies. The key feature of these companies is that most of them have seen multiple business cycles and come out victorious. Their ability to wade through good and bad times and yet create shareholder wealth is something that sets them apart. In that context, it is not surprising to note that the Nifty 100 index has lower volatility than broader markets. Nifty Midcap 100 index, as the name suggests, comprises of midcap companies. The moment one thinks longer term, it's important to seize the opportunity of this growth. One of the best ways to harness this opportunity is to invest in the torchbearers of this accelerating growth – most commonly known as midcap companies, he said.

While the Nifty 100 can provide more stability, the Nifty Midcap 100 can provide that high growth potential. Now, depending on the risk appetite, risk potential, and return requirements, a judicious mix needs to be decided. No one formula fits all. Broadly speaking, the younger the investor, the higher should be the allocation to Nifty Midcap 100, added Agarwal.

Gaurav Bissa, VP, InCred Equities, as well, chose the broader market index.

Nifty Midcap100 index has better long-term investment opportunities. However, on an immediate basis, the index is expected to witness a 10-20 percent correction which will provide lucrative buying opportunities to the long-term investors. The index has been forming higher highs and higher lows, which suggests the index is in a strong uptrend and any decline seen in the index should be used as a buying opportunity, as per Bissa.

Vinit Bolinjkar, Head of Research, Ventura Securities, also believes that the midcap index offers better opportunities in the long run.

“The Nifty 100 and Nifty Midcap 100 are both good investment options for the long term. However, the Nifty Midcap 100 has the potential to offer higher returns, as mid-cap stocks are generally more volatile and have the potential to grow faster than large-cap stocks. Nifty Midcap 100 has outperformed the Nifty 100 over the past 10 years. Nifty Midcap has historically given an average return of about 16.5-17 percent every year vs. 12-14 percent of Nifty 100,” said Bolinjkar.

Similarly, Neeraj Chadawar, Head - Quantitative Equity Research, Axis Securities, opted for the midcap index.

At the current juncture, midcaps are in a sweet spot of growth and provide better investment opportunities in the long run. However, in the near to medium term, largecaps provide more margin of safety. Generally, midcap companies tend to grow faster than the large-cap universe in an economic recovery scenario, so these companies are expected to see strong traction in client acquisition, capacity expansion, market share gain, pricing power and profitability improvement in the longer run. One should invest in quality midcap companies with an investment horizon of over 12-18 months, suggests Chadawar.

Suman Bannerjee, CIO, Hedonova, a US-based hedge fund, was also more in favor of the midcap index.

“I believe going with the Nifty Midcap 100 could be a good choice for long-term investments. Midcap companies often have more space to expand compared to larger ones, which might have already grown a lot. This growth potential in midcap firms can possibly lead to better returns over a long time. Also, midcap stocks might not get as much attention from analysts and big investors, so there's a chance to find hidden gems and profit from their growth,” said Bannerjee.

In a contrarian view, Narendra Solanki, Head Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers, has picked the Nifty 100 index.

“If you go by the nature of the construction of the indices then it is by design that Midcap100 has high growth with high volatility inbuilt into it while Nifty100 has relatively low growth with low volatility because it has predominantly large and bigger companies while the former has mid and small companies. Hence, higher nominal growth is achievable on a low base while not impossible but difficult to have high growth on a higher base. Also, Midcap100 is just about 18 percent of Nifty100 in terms of index market capitalisation so you can imagine the gap between the constituent companies,” highlights Solanki.

“Having said that, if you look at the recent outperformance the midcaps now trade at about 28x trailing PE, very close to their 10-year average trailing PE of 31x. In terms of 24-month forward EPS growth, Midcap100 is expected to post 20 percent growth while nifty100 is expected to grow about 16 percent. So, there is not much room for outperformance for midcaps post the current sharp runup and earnings have to catch up for further direction. We believe large cap offer a better risk-reward proposition,” he added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.