Midcaps outshine smallcaps long-term; offer more stability; deliver 'risk-adjusted returns'

Time of India

24-07-2025

Mutual funds focused on midcap stocks have delivered stronger long-term returns for investors using systematic investment plans (SIPs), outperforming smallcap funds over longer periods.
According to a study by Equirus Credence Family Office, the Nifty Midcap 150 Total Returns Index (TRI) generated an average return of 17.3% over 10-year rolling periods, compared to 15.1% for the Nifty small cap 250 TRI.
Over 15 years, the trend continued, with midcaps delivering 16.9%, outperforming smallcaps, which returned 14.1%.
"Midcap stocks have outperformed smallcaps over long term offering better risk-adjusted returns, stronger business fundamentals, and higher survivability," Chanchal Agarwal, CIO, Equirus Credence Family Office told ET.
In the classification system, companies ranked 101-250 by market capitalisation are considered midcaps, whilst those ranked 251 and below are designated smallcaps.
The midcap segment represents a more concentrated space versus smallcaps, which encompass a broader, more diverse group of companies. Recent substantial fund inflows through SIPs have particularly influenced midcap stocks, affecting their valuations and performance.
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Shorter duration analysis shows midcap index returns of 13.9% and 17.4% over three and five years respectively, surpassing smallcap returns of 11.9% and 15.11%.
"The best smallcap companies go on to become midcap companies and hence it is logical that over the longer term they offer better returns," Trideep Bhattacharya, CIO, Edelweiss Mutual Fund told ET.
Midcap stocks have shown more stability than smallcaps, with significantly lower drawdowns over time.
According to data from Equirus Credence Family Office, the lowest five- and ten-year rolling monthly SIP returns for the Nifty Midcap 150 TRI were -8.2% and 6%, respectively.
In contrast, the Nifty Smallcap 250 TRI posted much steeper minimum returns of -21.2% and 0.2% over the same periods.
Midcap stocks are now trading at a premium to large-cap blue chips.
The Nifty Midcap 150 has a price-to-earnings (PE) ratio of 35.21, higher than the Nifty 50's 22.29 and the Nifty Smallcap 250's 33.82.
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