Nifty 50 vs Midcap 150 vs Smallcap 250 vs Nifty 500: Cap Primarily based Indices Efficiency Comparability (2005-2026)

Smaller is best. A minimum of that’s what many buyers consider in terms of fairness investing in India.

And the info does appear to assist this view. During the last 20 years, mid and small cap indices have delivered considerably increased returns than Nifty 50. Nicely, at the very least on the floor.

However is it actually that straightforward? Does going smaller all the time imply increased returns? And extra importantly, are you able to deal with the experience?

What Does This Publish Cowl?

On this publish, allow us to examine the efficiency of 8 cap-based indices over the past 21 years (April 1, 2005, to March 31, 2026). I’ve thought of the Worth index (and never the Whole Returns index) for the evaluation. Have thought of 250-day yr for evaluation on this publish. We are going to have a look at calendar yr returns, CAGR, rolling returns, and threat metrics to know how these indices have truly behaved.

The 8 cap-based indices thought of for this evaluation:

1. Nifty 50
2. Nifty 100
3. Nifty 500
4. Nifty Massive & Midcap 250
5. Nifty Subsequent 50
6. Nifty Midcap 150
7. Nifty Smallcap 250
8. Nifty Microcap 250

Disclaimer: I’ve used Claude AI extensively for this efficiency evaluation. Whereas I’ve achieved a number of pattern checks and the findings look superb directionally, it might nonetheless comprise inaccuracies. Please do additional analysis or seek the advice of your funding adviser earlier than appearing on the knowledge shared on this publish.

The Fundamentals: How Are These Indices Completely different?

Earlier than we get to the numbers, a fast refresher.

Nifty 50 tracks the 50 largest firms by market capitalization. Nifty 100 extends this to the highest 100. Nifty 500 is a broad market index overlaying the highest 500 firms. Nifty Massive & Midcap 250 combines the highest 100 massive caps and the following 150 midcaps. Nifty Subsequent 50 tracks firms ranked 51-100 by market cap. Nifty Midcap 150 covers firms ranked 101-250. Nifty Smallcap 250 covers firms ranked 251-500. And Nifty Microcap 250 goes even additional down the market cap spectrum.

Observe that as you progress down the market cap ladder, you’re basically investing in smaller and fewer liquid firms. As an investor, the expectation is that you simply get compensated for this extra threat by way of increased returns. However does the info assist this? Let’s discover out.

Calendar Yr Returns

Take a look at the common calendar yr returns throughout these 21 years. Nifty 50 delivered 14.8%. Nifty Midcap 150 delivered 21.2%. And Nifty Microcap 250 delivered 26.2%. The sample is obvious. Smaller the shares, increased the common returns.

However now have a look at the person years. In 2008, Nifty 50 fell 51.8%. Nifty Smallcap 250 fell 69.1%. Nifty Microcap 250 fell 75.2%. In 2018, Nifty 50 was up 3.2% whereas Nifty Microcap 250 was down 27.7%. And in 2011, Nifty 50 fell 24.6% whereas Nifty Microcap 250 fell 41.6%.

The experience will get considerably rougher as you go smaller, proper?

Within the good years, the smaller indices ship wonderful returns. In 2009, Nifty Subsequent 50 delivered 127.9%. Nifty Microcap 250 delivered 118.4%. In 2014, Nifty Microcap 250 was up 103.3%. And in 2007, Nifty Smallcap 250 was up 94.9%.

Good years are superb, however through the funding journey, dangerous years matter too.

Consolidated Efficiency: The place the Actual Story Lies

Common Returns vs CAGR: Thoughts the Hole

The common calendar yr return for Nifty Microcap 250 is 26.2%. However the CAGR is just 15.2%. That’s a large hole of about 11 proportion factors.

For Nifty 50, the common return is 14.8% and the CAGR is 12.1%. The hole is just about 2.7 proportion factors.

Why does this occur? Due to volatility drag. The extra risky the returns, the bigger the hole between common returns and CAGR. Therefore, whereas the common returns for smaller indices look spectacular, the precise wealth creation (captured by CAGR) isn’t as dramatic because it seems.

Rs 100 Grows To…

In the event you had invested Rs 100 in April 2005, right here’s what it will have turn out to be by March 2026:

• Nifty 50: Rs 1,080
• Nifty Midcap 150: Rs 1,943
• Nifty Smallcap 250: Rs 1,429
• Nifty Microcap 250: Rs 1,889

Nifty Midcap 150 truly created extra wealth than Nifty Microcap 250. Sounds a bit unusual. Doesn’t it? Regardless of Microcap 250 having increased common returns. That is the volatility drag at work.

Threat: The Uncomfortable Fact

Nifty 50 has a typical deviation of 20.7% and a most drawdown of -59.9%.

Nifty Microcap 250 has a typical deviation of 23% and a most drawdown of -82.3%. An 82% fall means your Rs 1 lac turns into Rs 17,700. And then you definately want a 449% rise simply to get again to the place you began.

Now to the Sharpe ratio (threat adjusted returns). Larger the higher.

Nifty Midcap 150 has the very best Sharpe ratio at 0.45.  Nifty 50 has the bottom at 0.29.

Nifty Small Cap 250 at 0.35. Nifty Microcap 250 sits at 0.40, decrease than Midcap 150.

Rolling Returns: Consistency Issues

Rolling returns provide you with a way of consistency.

To me, the shock half is that Nifty Small Cap 250 dropping out to Nifty Midcap 150 over 80% of the time in 5-year rolling returns. 70% in 3-year rolling returns.

You’d have anticipated Nifty Small Cap 250 to beat Nifty Midcap 150 over the long-term. In any case, it has even smaller shares. It does appear to outperform point-to-point over 21 years, in case you have a look at simply the common calendar yr returns. Nevertheless, once you have a look at the CAGR, rolling returns and so forth., the small cap index falls behind fairly a bit.

And that’s not it. On 5-year rolling returns, Nifty Smallcap 250 beat Nifty 50 solely about 48.9% of the time. Lower than half. So, regardless of the upper common returns, in case you had invested in Nifty Smallcap 250 for any random 5-year interval, there was a superb likelihood Nifty 50 would have achieved higher.

How do you employ this info?

1. Don’t belief the info blindly. There could also be errors in my evaluation.
2. The intent of this publish is NOT to reveal superiority of 1 index over one other. And also you must also NOT overview this evaluation on this context. You don’t should be the very best to be pleased.
3. Don’t simply give attention to the returns. I’ve proven long-term knowledge. Therefore, for a few of the indices, the long-term knowledge might look very spectacular. Firstly, previous efficiency doesn’t assure future efficiency. Secondly, the long-term knowledge often seems to be fairly clean. It can conveniently conceal the risky journey {that a} explicit index would have taken you thru. Or slightly you are inclined to ignore these features and focus merely on the returns. Lengthy-term, for many buyers, is only a collection of short-term investments. Therefore, earlier than contemplating any of the indices chosen for this publish, you should look past the returns knowledge as nicely.
4. Conviction in an funding technique is essential. No funding technique, irrespective of how good, works on a regular basis. No funding technique, irrespective of how dangerous, fails on a regular basis. The ups and downs will take a look at your endurance. In the event you lack conviction, you’ll largely probably soar the ship on the improper time.
5. Give attention to constructing a low-cost diversified long-term portfolio.

The Caveats

1. Previous efficiency (or outperformance) doesn’t assure future efficiency (outperformance).
2. Whereas I’ve thought of the info from April 1 2005, many of those indices had been launched a lot later. Therefore, the outperformance by these issue indices might merely be a results of back-fitting. I wrote a >publish in early 2025 the place I in contrast the efficiency of issue indices since launch.
3. I’ve proven returns for indices. You don’t put money into indices. You put money into index funds or ETFs. Such merchandise may have monitoring distinction for varied causes and can decrease your returns. The monitoring distinction might improve if the underlying shares are much less liquid.              

Supply

NiftyIndices.com

Disclaimer: Registration granted by SEBI, membership of BASL, and certification from NISM on no account assure efficiency of the middleman or present any assurance of returns to buyers. Funding in securities market is topic to market dangers. Learn all of the associated paperwork rigorously earlier than investing.

This publish is for schooling objective alone and is NOT funding recommendation. This isn’t a advice to speculate or NOT put money into any product. The securities, devices, or indices quoted are for illustration solely and are usually not recommendatory. My views could also be biased, and I’ll select to not give attention to features that you simply take into account essential. Your monetary objectives could also be totally different. You will have a special threat profile. It’s possible you’ll be in a special life stage than I’m in. Therefore, you should NOT base your funding choices primarily based on my writings. There is no such thing as a one-size-fits-all answer in investments. What could also be a superb funding for sure buyers might NOT be good for others. And vice versa. Subsequently, learn and perceive the product phrases and situations and take into account your threat profile, necessities, and suitability earlier than investing in any funding product or following an funding method.