Over the past 25 years, can you guess which index has delivered better performance and by how much? Was it the Nifty Midcap 150 Index or the Nifty Smallcap 100 Index?
20-Year Performance Snapshot
If we look at the full chart over the last 20 years, you will find that the Smallcap Index has risen by 1,000%, while the Midcap Index has grown by 2,000%.
Interestingly, up until around 2015—during the first 10 years—the two indices performed almost equally. It was only after 2015 that the Midcap Index began a separate and distinct rally. This might lead one to think that investing in midcaps alone is the better strategy.
What Happened in the Last 5 Years?
However, there’s another dimension to this data that I’d like to highlight. What happened in the last five years? To explore this, we plotted the ratio of Nifty Midcap divided by Nifty Smallcap on a chart.
You’ll notice that this ratio hasn’t moved up since 2020. That’s because smallcaps have shown such a strong outperformance recently. From 2008 to 2020, midcaps had been outperforming impressively, but post-2020, the ratio between midcap and smallcap hasn’t shifted significantly. Even if smallcaps aren’t strongly outperforming anymore, they are at least not lagging behind midcaps.
The Current Strength of Smallcaps
This brings out a crucial insight: currently, smallcaps are holding their ground firmly. There’s also another important point—many of the smallcap stocks that perform well eventually become midcaps. They move from the lower-tier index to the upper-tier index. This transition is one of the reasons why the midcap index has historically outperformed the smallcap index.
Why Smallcap Index Loses Its Winners
However, it’s also true that the Smallcap Index consistently loses its top performers to the Midcap Index. Similarly, the Midcap Index also loses its best-performing stocks, as they graduate to become part of the Largecap Index. But in smallcaps, this migration is more visible. As soon as some quality smallcaps start growing, they are absorbed into the midcap space, which leaves the smallcap index weaker as a result.
So, what are your thoughts on this data point? Be sure to SHARE your views in the comments. We’ll meet again in the next one. Thank you!
WeekendInvesting launches – The Momentum Podcast
Join us on The MOMENTUM PODCAST as we sit down with Venkatesh, a dynamic product manager and MBA graduate from Hyderabad. Discover his incredible journey from starting investing during the 2020 COVID crash to achieving a remarkable 5X salary jump!
In this insightful conversation, Venkatesh shares:
✅ His early investing blunders and crucial lessons learned.
✅ How he built a disciplined investing routine with Nifty index funds and direct stocks like Tata Elxsi.
✅ The surprising benefits of his IT domain knowledge in stock picking.
✅ His long-term vision for financial independence and strategic wealth building.
✅ Why he prioritizes investments and EMIs (including his home loan!) before anything else.
If you’re a young professional looking to kickstart your investment journey or seeking inspiration for disciplined wealth creation, this episode is a must-watch!
