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Midcaps: How have they performed?

Dec 11, 2008

What is the Midcap Index?
The indices in general are constructed on the 80-15-5 method, wherein companies aggregating to approximately 98.5% of average market capitalization are categorized under large, mid and small cap segment respectively from the BSE universe. The BSE Midcap Index tracks the performance of scrips, which contribute almost 15% of aggregate market capitalization of all the companies listed on the BSE. The constituents of the index are reviewed every quarter. At the end of October 2008, 274 companies constituted the BSE Midcap Index.

Performance over the years
If one had invested Rs 100 each in the BSE Sensex, BSE 100, BSE Midcap and the BSE Smallcap indices in April 2005, it would be currently worth Rs143, Rs 135, Rs 93 and Rs 86 respectively. Since its inception (April 2005) until December 2007, the BSE Midcap index has been almost in tandem with its larger counterparts. However, in the year till date the index has been completely out of sync as compared to the BSE Sensex and BSE 100 indices.

  • Also read - Smallcaps: How have they performed?

    In our previous article, we had mentioned about the possible reason behind the smallcaps stocks outperforming the large cap stocks at the peak of the bull runs. Now, with the markets being in the bear phase, the reverse should be true as well. Midcaps, being fast growing companies should bounce back quickly. However, the same has not been true. The reasons for the same being investors' aversion to risk and also the deep discount to intrinsic values of large caps. Also, it should be kept in mind that any slowdown in economic activities is likely to hurt the smaller players first.

    Share prices are nothing but indicators of an investor's expectations of a company's future earnings. While this rule may not always apply to the companies from the BSE Small cap index, the same cannot be said about the Midcap Index. Midcaps as compared to smallcaps are relatively more researched and lesser dependant on the movement of the largecaps due to the availability of information. As such, the Midcap Index is relatively less impacted by the movement of the larger peers.

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