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When it comes to investing in stock market, understanding different types of stocks based on market capitalisation is crucial. One such important category is midcap stock companies that fall between large cap & small cap segments in terms of market capitalisation.
Midcap companies have a market capitalisation ranging from ₹5,000 crore to ₹20,000 crore. These stocks are seen as a balanced investment option, offering a mix of stability and growth potential.
In this article, we will explore what midcap stocks are, how they are classified, their key characteristics and why they could be a valuable addition to your investment portfolio.
So let’s start with:
What are Mid Cap Stocks?
To understand mid cap stocks, first understand what market capitalisation means.
Market capitalisation is the total market value of a company. It is calculated by multiplying company’s total number of outstanding shares by the current share price. Based on this value, companies are broadly classified into three categories:
- Large Cap
- Mid Cap
- Small Cap
Let’s look at each of them in detail
Large cap companies are well established businesses with a strong reputation and stable performance. They have a market cap of over ₹20,000 crore and are known for providing consistent dividends. These companies are industry leaders and considered safer investment options.
Mid cap stocks belong to companies that are smaller than large caps but larger than small caps. Generally, companies with a market capitalisation between ₹5,000 crore and ₹20,000 crore fall under this category.
Mid Cap companies usually show good growth potential. While they may be slightly riskier than Large cap stocks, they also offer higher returns over time.
The term Mid Cap is not just about numbers. It also considers a company’s ranking on stock indices like Nifty. For example:
- Companies ranked 101st to 250th in Nifty 500 index are usually classified as Mid Cap stocks.
- Nifty Midcap 50 index includes the top 50 most traded Mid Cap stocks in India.
Small cap companies have a market capitalisation of less than ₹5,000 crore. These businesses are younger and may offer higher returns but also carry higher risks.
Market Capitalisation Categories
Here is a simple table to help you understand the category based on market cap
| Company Type | Market Capitalisation Range |
|---|---|
|
Large Cap |
More than ₹20,000 crore
|
|
Mid Cap
|
₹5,000 crore to ₹20,000 crore
|
|
Small Cap
|
Less than ₹5,000 crore
|
Features of Mid Cap Stock
Below are the important features of Mid Cap stocks
- Market Capitalisation: Mid cap companies have a market capitalisation between ₹5,000 - ₹20,000 crore. These companies are positioned between small and Large cap firms, making them a preferred choice for investors looking for moderate growth with manageable risk.
- Liquidity: Mid Cap stocks are more liquid than small cap stocks, which makes them easier to buy and sell. These companies are relatively well known and have a stable investor base, enabling smoother trades at fair prices.
- Moderate Risk: Compared to small cap stocks, mid cap stocks carry lower volatility, making them moderately risky. However, they may still be more sensitive to market downturns than largecap stocks.
- Growth Potential: Mid Cap companies have strong growth potential. They are in their expansion phase and can increase their profitability, productivity and market presence. If they perform well during bullish markets, investors may see good returns.
- Diversity: Mid cap stocks offer a diverse mix of risk & return. Some companies may be approaching maturity and offer stability, while others may have transitioned from small cap and are focused on growth.
- Chance of Growth: One of the biggest advantages of investing in Mid cap companies in India is the possibility of sharp growth. These firms are innovation driven and responsive to market trends, giving them a higher chance of becoming industry leaders in the future.
Why Should You Invest in Mid Cap Stocks?
Over the past few years, Mid cap stocks have delivered better returns compared to many Large cap and small cap stocks. Their balanced nature offering moderate risk and good return.
Because of their position in the market, Mid Cap companies in India can grow faster than large, established firms while being more stable than smaller companies.
Let’s explore reasons why you should consider investing in Mid Cap stocks
- Ease of Growth
Mid cap companies have better access to funding through loans and capital markets than small cap firms. This financial support allows them to expand their business faster, increasing their chances of growth & profitability.
- High Return Potential
Since mid cap companies are still in the growth phase, they offer good scope for value appreciation. Many of them also pay dividends, providing investors with an additional income stream.
- Less Analyst Coverage
Unlike Large cap stocks, mid cap shares are not widely analysed, especially in the early stages. This often keeps their prices undervalued. Smart investors who can identify strong Mid Cap stocks early may benefit from future price growth when these stocks gain more attention from analysts and institutions.
- More Financial Data than small caps
Compared to small cap firms, mid cap companies provide more detailed financial reports & performance history. This makes easier for investors to research & evaluate performance of mid cap stocks.
How To Choose Best Midcap Stocks
Investing in Mid Cap stocks can be rewarding if chosen carefully.
Here are key factors to consider when selecting profitable mid cap companies:
- Profitability:
- A consistent rise in profits generally leads to higher stock prices.
- Companies reducing losses over time even if not yet profitable may still be good picks.
- Avoid firms with increasing losses despite rising sales, unless backed by strategic reasons (e.g., temporary expansion costs).
- Growth Potential:
- Mid Cap companies should show strong and consistent sales growth.
- Growing sales, especially when outperforming Large cap peers, signal good investment potential.
- Avoid companies with stagnant revenue.
- Research:
- Review financials, business models, management qualityand industry outlook.
- Track stock performance, earnings trendsand market position.
- Mid Cap investments are ideal for long term holding (5+ years) and require comfort with price fluctuations.
What are Risks Associated with Mid Cap Stocks?
While mid cap stocks in India offer strong growth, they also come with certain risks that investors should consider:
- Stock Price Volatility:
Mid cap stocks are more volatile than Large cap stocks. Their prices can fluctuate sharply, which may not suit conservative or new investors.
- Liquidity Risk:
Some mid cap shares have lower trading volumes, making them harder to buy or sell without affecting the price.
- Limited Analyst Coverage:
Analysts do not actively track many mid cap companies. This lack of data makes it harder to assess their proper financial health & future prospects.
- Industry Specific Risks:
Mid Cap stocks are vulnerable to disruptions in their industry. For instance, sectors like EV, techor pharma can experience rapid changes, affecting companies that fail to adapt.
- Value Trap Risk:
Some Mid Cap stocks may appear undervalued but continue to deliver weak profits and poor cash flow over time, trapping investors with limited growth potential.
- Bubble Risk:
Sharp stock rallies without strong fundamentals can create financial bubbles. When market sentiment reverses, only fundamentally strong companies survive the fall.
Final Words
Mid cap stocks offer a mix of growth potential and moderate risk, making them a valuable addition to a well diversified portfolio. However, selecting right Mid Cap companies requires careful analysis of their financial health, management qualityand industry outlook. By focusing on fundamentals and staying informed, investors can identify Mid Cap opportunities that align with their long term goals. Continually assess your risk appetite and, when in doubt, seek expert guidance to make informed investment decisions.
Frequently Asked Questions
Which is better small cap or Mid Cap?
Mid Cap stocks offer a balance of growth and stability, while small caps are riskier but may offer higher returns. Choice depends on your risk tolerance and goals.
Are Mid Cap stocks good?
Yes, Mid Cap stocks are ideal for long term growth with moderate risk, especially if chosen based on strong fundamentals and sector potential.
How much should you invest in Mid Cap stocks?
Allocating 20% to 30% of your equity portfolio to Mid Caps is considered reasonable, depending on your investment strategy and risk profile.
How many Mid Cap stocks are there?
Nifty Midcap 150 Index tracks the top 150 Mid Cap companies listed in India based on market capitalisation.
How to Invest in Mid Cap Stocks?
You can invest in Mid Cap stocks directly via a stockbroker or through mutual funds and ETFs focused on Mid Cap companies. Always research fundamentals before investing.
What is a Mid Cap stock?
A Mid Cap stock belongs to a company with a market capitalisation between ₹5,000 crore and ₹20,000 crore, offering moderate risk and high growth potential.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
