Kotak Warns Midcap Index Churn Undermines Historical Data Value
Kotak Institutional Equities notes that only 46 stocks remained in the Nifty Midcap 150 consistently since FY22.
Key points
- Only 46 stocks stayed in the Nifty Midcap 150 index from FY22 to H1-FY27.
- 275 unique stocks participated in the index during the FY22-26 period.
- 41 stocks moved to larger indices while 129 slipped to smallcap status.
Only 46 stocks remained in the Nifty Midcap 150 consistently from FY22 through H1-FY27. Kotak Institutional Equities released this finding in a report on Tuesday.
The firm argues that frequent constituent changes limit the index's utility for historical comparison. Analysts describe the index methodology as mechanical and restrictive in its current form.
High turnover distorts past performance metrics
A total of 275 unique stocks appeared in the index during FY22-26. This high churn makes it difficult to compare future earnings with historical growth.
Sanjeev Prasad, managing director at Kotak, noted that valuation multiples are also hard to track. The shifting composition prevents reliable analysis of long-term market trends.
Sector bias skews index representation
Popular sectors can enter the index simultaneously while out-of-favor sectors fall behind. This creates an over-representation of certain industries in the index.
Around 27 stocks accounted for over 50 percent of index performance in half-year periods. Many of these top contributors later exited the index entirely.
Stocks migrate across market cap categories
Forty-one former mid-cap stocks graduated to the Nifty 50 or Nifty Next 50. Another 129 slipped to the Nifty Smallcap 250 or dropped out of indices.
The Nifty Midcap 150 gained 97 percent between March 2023 and September 2024. It has moved just 2.6 percent since then according to business-standard.com.
