The market segment covering companies ranked 101-250 by market capitalisation has emerged as a sweet spot for Indian equity investors, with the Nifty Midcap 150 index consistently outperforming both large-cap and small-cap benchmarks.

The data support this: Over the last 20 years, the Nifty Midcap 150 Total Return Index (TRI) has delivered a compounded annualised growth rate (CAGR) of 16.5 per cent, compared with 13.8 per cent for the Nifty 100 TRI and 14.3 per cent for the Nifty Smallcap 250 TRI.

Index funds and ETFs have gained notable traction in the mid-cap segment, particularly after the recent underperformance of actively managed mid-cap funds relative to their benchmarks. According to bl.portfolio analysis, active mid-cap funds have lagged their benchmarks 80 per cent of instances on rolling five-year return periods over the past seven years. For investors seeking cost-efficient, benchmark-aligned returns, passive mid-cap funds offer a compelling option. Available as either index funds or ETFs, there are currently 51 passive mutual funds tracking various mid-cap indices, with combined assets under management (AUM) of about ₹22,000 crore (as of October 2025).

Currently, index funds and ETFs track 13 different mid-cap indices, which we classify into four distinct categories: Broader indices, blended indices combining large- and small-cap stocks, smart beta strategies, and sector & thematic indices.  In this analysis, we compare their return profiles, risk characteristics, underlying holdings and investor suitability, and find out which indices are best suited as a core mid-cap allocation and which belong only in satellite or tactical positions.

Mid-caps in India represent firms beyond early-stage volatility yet still in high-growth mode. They differ from large-caps, which offer greater stability, liquidity and steadier earnings, and from small-caps, which provide higher potential returns but come with sharper price swings, lower liquidity and higher business risk.

Broader indices

Four broad mid-cap indices are used by passive mutual funds — the Nifty Midcap 50 (NM50), Nifty Midcap 100 (NM100) and Nifty Midcap 150 (NM150) from NSE and the BSE Midcap Select index from BSE.

What are they? NM50 reflects mid-cap performance by selecting the top 50 stocks from the Nifty Midcap 150 basket. First, the top 100 stocks are ranked by full market cap and turnover, and then 50 stocks are shortlisted based on six-month average free-float market cap. It is tracked by three funds — an ETF from Kotak MF and index funds from Axis MF and Kotak MF.

NM100 consists of 100 stocks, combining all NM50 constituents with additional names from the rest of the Nifty Midcap 150 universe. It is tracked by two ETFs offered by Motilal Oswal MF and LIC MF.

The NM150 comprises companies ranked 101-250 by total market capitalisation within the Nifty 500 universe, with weights calculated using free-float market-cap methodology. This index currently acts as the benchmark for nine ETFs and 15 index funds. Among ETF providers, ICICI Prudential MF, Mirae Asset MF and Nippon India MF exhibit lower tracking error, while SBI MF, ICICI Prudential MF and Motilal Oswal MF offer index funds with relatively-low tracking error.

The BSE Midcap Select index captures leading 30 mid-cap stocks with strong fundamentals and liquidity, offering diversified exposure to India’s growth-oriented mid-market segment. ICICI Prudential offers BSE Midcap Select ETF.

Sector mix: In NM50, Financial Services (30 per cent), Capital Goods (15 per cent) and IT (9 per cent) dominate as of October 2025.

For both NM100 and NM150, the top sectors are Financial Services, Capital Goods and Healthcare — with NM100 at 27 per cent, 14 per cent and 8 per cent, and NM150 at 26 per cent, 14 per cent and 8 per cent, respectively. NM150 is the most diversified among the three, with comparatively-higher exposure to autos, metals and power, while services, realty and IT carry relatively lower weights.

Performance: Based on 10-year rolling return data computed from the last 20 years of index history, NM150 delivered a 16.2 per cent CAGR, outperforming NM100’s 14.9 per cent and NM50’s 12.7 per cent. NM50’s relative underperformance is attributed to its tilt toward F&O-heavy stocks, which increases its susceptibility to crowding and short-term flows, leading to sharper swings, deeper drawdowns and slower recoveries. In contrast, NM150’s broader diversification supports steadier, earnings-driven growth, with less trading noise (reduced short-term price movements caused by speculative trading, momentum chasing and F&O flows) and fewer sentiment-driven distortions. It has also benefitted from multi-year domestic capex and infrastructure cycles, and from export-oriented themes — trends that a narrower and more cyclical portfolio like NM50 did not fully capture.

Volatility and drawdown: Annualised standard deviation from rolling monthly returns over the last 10 years shows NM150’s volatility at 20.3 per cent, below NM50’s 22.4 per cent and NM100’s 21.1 per cent.

Comparisons across six major corrections over the past two decades show that NM50 suffered deeper peak-to-trough declines than NM150 in five of the six periods. NM100 also saw deeper drawdowns than NM150 in three of those six episodes.

Valuation: Valuation indicators based on trailing twelve-month Price to earnings (PE) ratios (as per NSE data) have shown mixed trends over time. As of October 31, 2025, PE ratios for NM50, NM100 and NM150 stood at 34.5, 34.3, and 34.1 respectively.

Suitability: In terms of return performance, NM150 continues to lead NM50 and NM100, though the gap has narrowed in recent years. Across other risk and quality parameters as well, NM150 tends to outperform. For investors with a horizon of seven years or more, index funds and ETFs tracking NM150 are a strong candidate for core mid-cap exposure. Within this category, preference should be given to funds with lower tracking error, competitive costs and sizeable AUM. ETF investors should also look for adequate trading volumes and narrow bid-ask spreads.

Blended mid-cap indices

Two blended mid-cap indices bridging large- and small-cap exposures are currently available — the Nifty LargeMidcap 250 and the Nifty MidSmallcap 400.

The Nifty LargeMidcap 250 tracks a basket of 100 large-cap and 150 mid-cap stocks from the Nifty 100 and Nifty Midcap 150, with weights split evenly at 50 per cent each for the indices. Currently, six passive products track this index — one ETF from Edelweiss MF and five index funds from HDFC MF, ICICI Prudential MF, Mirae Asset MF, Edelweiss MF and Zerodha MF.

The Nifty MidSmallcap 400 comprises all companies from the Nifty Midcap 150 and Nifty Smallcap 250, offering pure mid- and small-cap exposure. Currently, only Navi MF offers an index fund tracking this benchmark.

Sector exposure: In the LargeMidcap 250, Financial Services (30 per cent), Capital Goods (9 per cent) and IT (8 per cent) hold the largest weights. In the MidSmallcap 400, Financial Services (25 per cent), Capital Goods (14 per cent) and Healthcare (10 per cent) dominate.

Performance: Based on 10-year rolling returns over the last two decades, the Nifty LargeMidcap 250 TRI returned 14.3 per cent, while the Nifty MidSmallcap 400 delivered 15.3 per cent. Notably, the Nifty Midcap 150 surpasses both, at 16.2 per cent.

Volatility: Annualised standard deviation from rolling monthly returns shows volatility for the Nifty LargeMidcap 250 at 17.8 per cent, below the Nifty MidSmallcap 400 at 21.4 per cent and the Nifty Midcap 150 at 20.3 per cent.

Suitability: As blended benchmarks, passive funds tracking these indices provide broad exposure across market tiers. The Nifty LargeMidcap 250 offers a steadier experience — combining mid-cap upside with large-cap stability and lower volatility. Meanwhile, the Nifty MidSmallcap 400 offers the most aggressive risk-reward profile among mid-cap-centric indices and is better suited for investors comfortable with small-cap volatility and deeper drawdowns. These blended indices are better used alongside a core mid-cap allocation, rather than as a replacement for it.

Smart Beta strategies

Smart beta funds apply rules-based approaches that deviate from standard market-cap weighting by emphasising factors such as value, momentum, low volatility, quality or alpha, aiming to generate excess returns over conventional benchmarks.

Within the mid-cap space, passive funds currently track three factor-based indices: Two single-factor indices from the Nifty Midcap 150 universe — Nifty Midcap150 Momentum 50 and Nifty Midcap150 Quality 50 — and one multi-factor index, Nifty MidSmallcap400 Momentum Quality 100.

Single factor: The Nifty Midcap150 Momentum 50 selects 50 mid-cap stocks with the strongest price momentum, based on a Normalised Momentum Score derived from six- and 12-month returns adjusted for volatility. Motilal Oswal MF offers an ETF. Edelweiss MF, Tata MF and Kotak MF offer index fund versions.

The Nifty Midcap150 Quality 50 selects 50 mid-cap companies with superior profitability, lower leverage and more stable earnings. Stocks are scored on five-year ROE, debt levels (excluding financials), and earnings variability. DSP MF offers an ETF. UTI MF and DSP MF offer index fund variants.

Multi-factor: The Nifty MidSmallcap400 Momentum Quality 100 selects 100 mid- and small-cap stocks combining strong fundamentals with robust price trends. Momentum scores use 6- and 12-month returns adjusted for volatility; quality scores use ROE, leverage, and EPS stability over five years; weights combine these with free-float market cap data.

Performance: Based on 10-year rolling returns over the 20 years, the Nifty Midcap150 Momentum 50 posted a 23.1 per cent CAGR, outperforming the Nifty Midcap150 Quality 50 at 18.4 per cent. Both outperformed the NM150’s 16.2 per cent.

Suitability: The Nifty Midcap150 Momentum 50 suits aggressive investors seeking high-growth mid-caps with momentum-driven volatility over decade-long horizons. The Nifty Midcap150 Quality 50 suits moderately aggressive investors seeking quality-filtered mid-caps with smoother drawdowns over 7-10 years. The Nifty MidSmallcap400 Momentum Quality 100 is best suited to sophisticated investors seeking diversified mid-small exposure with disciplined factor filters, accepting higher volatility and investing only long-term surplus capital. Investors should also note that factor indices typically involve higher portfolio turnover and can underperform plain-vanilla mid-cap indices for extended stretches, so they are better used as satellites rather than as a core midcap allocation.

Sector & thematic indices

Currently, four sector- and theme-based indices span the mid- and small-cap spectrum. The Nifty MidSmall Financial Services index includes mid-/small-cap banks, NBFCs, fintechs and insurers, offering high-beta exposure to credit-cycle expansion. The Nifty MidSmall Healthcare index covers pharma, diagnostics, hospitals and medical-technology firms, offering structural growth with manageable cyclicality.

The Nifty MidSmall India Consumption index represents discretionary and staples-oriented businesses in retail, FMCG, consumer services and home appliances. The Nifty MidSmall IT & Telecom index targets niche technology providers, digital platforms, IT services and telecom-infrastructure players. Motilal Oswal currently offers index funds across all four sectors, while Tata offers an option for Healthcare exposure.

These sectoral mid-small-cap funds are volatile, prone to sharp drawdowns and highly sensitive to industry-specific cycles. They are suitable only for experienced investors using small allocations as part of a diversified portfolio. SIP route must be the preferred option and a minimum seven-year time horizon will be required.

Published on November 29, 2025