Mid cap companies usually fall between large cap and small cap companies in terms of market capitalisation. They are often more established than small cap companies, but may still have more room to grow than large cap companies.
The Nifty Midcap Select Index tracks a focused group of mid cap companies that are relatively large and actively traded within the mid cap space. This article explains what the Nifty Midcap Select Index means, how stocks are selected for it, and what investors should know about its features, benefits and risks.
Table of Contents
What is the Nifty Midcap Select Index?
The Nifty Midcap Select Index is an equity index that tracks 25 selected mid cap companies from the Nifty Midcap 150 Index. It does not represent all mid cap companies. Instead, it picks companies based on market cap and average daily turnover, and availability for trading on NSE’s Futures & Options segment (F&O)
In simple terms, liquidity means how easily a stock can be bought or sold in the market. By focusing on relatively liquid mid cap stocks, the index gives investors a more focused way to track an actively traded part of the mid cap segment.
How does Nifty Midcap Select work?
The Nifty Midcap Select Index is weighted based on a free-float market capitalisation methodology. Free float refers to shares available for public trading after excluding promoter holdings and certain locked-in or strategic holdings.
Companies with higher free-float market capitalisation generally receive higher weights within the index.
The index is calculated in real time and is reconstituted semi-annually in March and September.
Features of Nifty Midcap Select
Key features of the index include:
- Concentrated set: The index includes 25 companies chosen from the Nifty Midcap 150 universe. This makes it more focused than broader mid-cap indices.
- Focuses on liquid stocks: The companies included in the index are selected with liquidity in mind. This means the index gives importance to stocks that are more actively traded in the market.
- Weighted by free-float market capitalisation: The weight of each stock in the index is based on its free-float market capitalisation. In simple terms, this means companies with a higher value of shares available for public trading may have a higher weight in the index.
- Calculated in real time: The index value is calculated during market hours, which helps investors track movements in this part of the mid-cap segment through the trading day.
- Reviewed twice a year: The index is reviewed and reconstituted semi-annually, which helps ensure that the index continues to comprise only those companies that meet its criteria.
Benefits of investing in Nifty Midcap Select
The Nifty Midcap Select Index can offer investors a way to understand and access a narrow segment of the mid cap space. Some key benefits include:
- Exposure to select mid cap companies: The index tracks 25 selected companies from the Nifty Midcap 150 universe, giving investors exposure to a concentrated basket within the mid cap space.
- Rules-based stock selection: The index follows a defined methodology for selecting stocks, instead of relying on individual stock picking. This can make the approach more structured and transparent.
- Reduced dependence on individual stock choices: Since the index includes a basket of companies, investors are not dependent on the performance of only one or two self- selected stocks.
- Transparent methodology: Investors can review the index constituents, stock weights and selection rules before considering investment products linked to the index.
Risks associated with Nifty Midcap Select
Like any equity index, the Nifty Midcap Select Index also carries risks. Investors should understand these before taking exposure to products linked to it.
- Higher volatility: Mid cap stocks may move more sharply than large cap stocks, especially during uncertain market conditions.
- Market risk: The index can be affected by changes in earnings expectations, interest rates, liquidity conditions, economic developments and overall market sentiment.
- Concentration risk: Since the index has only 25 stocks, it is more concentrated than broader market indices. This means a sharp movement in a few stocks may have a larger impact on index performance.
- Sector and stock specific risk: If a particular sector or company in the index faces pressure, it may affect the overall index more visibly.
Who should invest in Nifty Midcap Select?
The Nifty Midcap Select Index may be suitable for investors who want focused exposure to the mid cap segment and are comfortable with equity market ups and downs.
- Investors with a long investment horizon: Mid cap investments may need more time to move through market cycles. A longer investment period may help investors manage short term volatility better.
- Investors with higher risk appetite: Since mid cap stocks can be more volatile, this index may be more suitable for investors who can tolerate sharper market movements.
- Investors looking for focused mid cap exposure: It may be considered by investors who already have diversified equity exposure and want to add a focused mid cap allocation.
- Investors comfortable with index-based investing: Since the index follows a rules-based approach, it may suit investors who prefer a transparent and structured benchmark linked exposure.
Investors with a short investment period or low risk tolerance may consider broader market indices or more diversified investment options.
Ways to invest in Nifty Midcap Select
You cannot invest directly in the Nifty Midcap Select Index, just like you cannot invest directly in any index. An index only tracks the performance of a selected group of stocks.
At present, the Nifty Midcap Select Index is mainly available as an underlying index for futures and options contracts on the National Stock Exchange. These are derivative products, not regular investment options like mutual funds or ETFs.
Futures and options involve leverage. This means both gains and losses can be higher. Hence, they may be more suitable for experienced traders who understand how derivatives work.
Investors who want simpler exposure to the mid cap segment can consider mid cap mutual funds, index funds or ETFs that track broader mid cap indices, where available. However, these products may not track the Nifty Midcap Select Index specifically.
Nifty Midcap Select vs Nifty Midcap 150
Both Nifty Midcap Select and Nifty Midcap 150 track the mid cap segment, but they do not serve the same purpose. Nifty Midcap 150 gives a broader view of mid cap companies, while Nifty Midcap Select focuses on a smaller basket of more liquid and actively traded mid cap stocks.
| Parameter | Nifty Midcap Select | Nifty Midcap 150 |
| Meaning | A focused index tracking 25 selected mid cap companies from the Nifty Midcap 150 universe. | A broader index tracking 150 mid cap companies from the Nifty 500 universe. |
| Number of stocks | 25 stocks | 150 stocks |
| Coverage | Narrower coverage of the mid cap segment. | Wider coverage of the mid cap segment. |
| Stock selection | Stocks selected based such as market capitalisation, trading activity and free float market capitalisation. | Selected based on ranking in the Nifty 500 by full market capitalisation. |
| Liquidity focus | More importance to stocks that are actively traded and more liquid. | It represents a broader mid cap universe, so liquidity may vary across constituents. |
| Diversification | More concentrated with fewer stocks. | More diversified because it has a larger number of stocks. |
| Risk profile | Since it has only 25 stocks, movement in a few companies or sectors may affect the index more sharply. | Since it has 150 stocks, the impact of a single stock may be relatively lower. However, it still carries mid cap volatility. |
| Use case | It may be useful for tracking a focused and more actively traded part of the mid cap market. | It may be useful for understanding the overall performance of the broader mid cap market. |
| Suitable for | Investors or market participants who want to follow a narrower mid cap basket. | Investors who want a broader view of the mid cap segment. |
Conclusion
The Nifty Midcap Select Index is a transparent benchmark that tracks a handful of midcap companies through a rules-based methodology. Its constituent selection process and periodic review framework make it easier for investors to understand the composition of the index. However, the index remains an equity benchmark and is subject to market risk, concentration risk, and liquidity-related risks. Any investment decision involving products linked to the index may be evaluated in the context of investment objectives, investment horizon, and risk appetite.
FAQs
What is Nifty Midcap Select?
The Nifty Midcap Select Index is an equity index that tracks 25 selected mid cap companies from the Nifty Midcap 150 Index. It is designed to represent a focused and more actively traded part of the mid cap segment. The index does not cover all mid cap companies.
How does Nifty Midcap Select compare to Nifty 50?
Nifty 50 tracks 50 large cap companies and is often used as a broad indicator of the Indian equity market. Nifty Midcap Select, on the other hand, tracks 25 selected mid cap companies. This means Nifty Midcap Select is more focused and may be more volatile than Nifty 50.
Is Nifty Midcap Select better than small cap?
Neither is inherently better. The suitable index depends on the investor’s goal, risk appetite and investment horizon. Mid cap companies are usually more established than small cap companies, but may still carry higher risk than large cap companies. Small cap stocks may offer higher growth potential, but can also be more volatile.
How is Nifty Midcap Select calculated?
The Nifty Midcap Select Index is calculated using the free float market capitalisation method. This means companies with more shares available for public trading may get a higher weight in the index.
It includes 25 stocks selected from the Nifty Midcap 150 universe. Selection is based on factors such as market capitalisation, trading activity and availability in the futures and options segment.
Can investors invest in Nifty Midcap Select through ETFs?
The index is mainly available as an underlying for futures and options contracts on the National Stock Exchange.
Investors looking for simpler mid cap exposure may consider broader mid cap mutual funds, index funds or ETFs, where available. However, these may not track the Nifty Midcap Select Index specifically.
