Mid-cap stocks yielding better returns, finds Crisil study
28 May 2013
Long-term investors should increasingly hedge their blue chips with mid-cap stocks, according to a study by Mumbai-based analytical firm Crisil.
Mid-cap equities have outperformed the generally preferred and more liquid large-caps on the Nifty, Crisil says.
It added in a statement today that mid-caps not only provided higher returns over longer time frames, but were also less volatile.
The study reflects what serious investors have known for some time now – that with a slow revival in the Indian economy, mid-cap stocks are once again becoming attractive.
The Crisil study on the returns and volatility of large-cap and mid-cap equity indices showed that mid-caps not only provided higher returns over longer time frames, but were also less volatile. The study was extended to mutual funds as well, and reported similar results.
CRISIL Research analysed the performance of the CNX Nifty Index (large-cap index) and CNX Midcap Index (mid-cap index) over a 10-year period until March 2013.
The CNX Midcap Index gave 23 per cent annualised returns over this period, while the CNX Nifty Index returned 19 per cent.
Volatility measured by standard deviation (a risk measure) for the CNX Midcap Index was lower at 25 per cent compared to 26 per cent for the CNX Nifty Index. A longer timeframe is a better reflection of the trend, as it incorporates multiple market cycles. Even over other periods of analysis - three, five and seven years - the mid-cap index was less volatile.
CRISIL Research also looked at the last 10 calendar years to test the consistency of this hypothesis. Over this period, the CNX Midcap Index has outperformed the CNX Nifty Index in six out of 10 years. On the volatility front, the mid-cap index has been less volatile in 50 per cent of the observed instances, especially from 2007 onwards. In other periods too, the difference in volatility between the two indices was marginal.
