Nifty 50 vs. Nifty Midcap 150 - Part 2

In Part 1 of this blog, we examined various comparative aspects of the Nifty 50 and Nifty Midcap 150, focusing on annual returns, drawdowns, and rolling returns. In this segment, we will delve into SIP returns and provide a summary of our overall findings.

SIP Returns

While rolling returns offer valuable insights across numerous data points, they are limited to the specific period being evaluated and do not account for investments made at different times. For long-term, disciplined investors, SIP returns may provide a more accurate reflection, as they encompass investments made during both market highs and lows.

To evaluate SIP returns, I analyzed SIPs initiated at the beginning of each financial year for both indices. Subsequently, at the end of each month up to April 2025, we assess which index delivers the higher XIRR. Generally, equity investments are recommended for a time horizon exceeding 4 to 5 years. Therefore, I have compared the two indices over two periods: the first 5 years since the SIP inception and from the 6^th year up to April 2025.

	% of Months Nifty 50 has higher XIRR
SIP Start Month	First Five Years	Post 5 Years upto Apr 2025
Apr-05	76.7%	19.9%
Apr-06	53.3%	11.2%
Apr-07	33.3%	8.3%
Apr-08	20.0%	6.2%
Apr-09	38.3%	0.8%
Apr-10	68.3%	0.0%
Apr-11	38.3%	0.0%
Apr-12	33.3%	0.0%
Apr-13	11.7%	0.0%
Apr-14	0.0%	19.2%
Apr-15	28.3%	18.0%
Apr-16	55.0%	0.0%
Apr-17	60.0%	0.0%
Apr-18	50.0%	0.0%
Apr-19	18.3%	0.0%
Apr-20	3.3%	0.0%
Apr-21	12.5%	NA
Apr-22	13.9%	NA
Apr-23	0.0%	NA
Apr-24	25.0%	NA

The data indicates that for long-term investors with a horizon of over five years, the Nifty 50 would rarely yield higher returns. In fact, even within the initial five years of investment, the Nifty 150 appears to have a greater likelihood of outperforming the Nifty 50. While I have not included the specific XIRR for various periods, it is noteworthy that when the Nifty 50 does achieve a higher XIRR than the Nifty 150, the overall corpus is only 5 to 15% greater. Conversely, when the Nifty 150 achieves a superior XIRR, the overall corpus can be up to 90% higher.

The decision between two funds or instruments becomes compelling if one consistently provides higher returns than the other 60 to 70% of the time, but in the remaining 30% of instances, the second instrument delivers a significantly higher alpha. In this context, the Nifty 150 consistently offers superior returns.

Summary

In terms of annual returns, rolling returns, and SIP returns, the Nifty Midcap 150 index generally outperforms the Nifty 50 for long-term investments. However, in scenarios of large drawdowns, the Nifty 50 demonstrates superior performance. While the Nifty 50 delivered better returns and stability up until 2010, the performance of the Nifty Midcap has markedly improved since 2011. Factors such as enhanced corporate governance, professional management, overall economic growth, and increased analyst coverage may contribute to this improved performance. Currently, the Midcap Nifty 150 index is trading at a P/E ratio exceeding 33, which is significantly above its historical average and that of the Nifty 50, posing a risk that investors should consider before making substantial investments.

Note:

1. Source of data is AMFI, www.advisorkhoj.com and data analysis by Shwealth

2. The indices discussed here are in no way are recommendation for investment