The Nifty Midcap index is well on its way to outshine the benchmark yet again in terms of earnings growth, Kotak Securities said in a research note, adding that its bottom-up analysis highlights the large role of a few sectors and stocks in earnings of both the indices.
The brokerage is expecting higher growth in the aggregate earnings of Nifty Midcap 150 Index, as against the Nifty-50 Index over Fiscal 2028 to 2029, following an earlier set track record over FY25-26.
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While the index is expected to drive higher growth backed by its ‘dynamic' indices compared to the ‘static'nature of large-cap indices, higher weight of new industries in mid-cap, and smaller size of midcaps versus large-caps in the same sector.
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However, Kotak noted both the indices suffer from a few ‘design' defects such as:
(1) Large number of sectors and stocks with different growth dynamics; the 'representation' objective of indices is offset by the ‘diversity' problem,
(2) Large share of a few sectors and stocks in aggregate earnings despite representation of several industries in indices and
(3) Large share of a few commodity sectors and stocks in incremental profits in certain years, which can skew aggregate index earnings
and growth
What Sectors Will Shine?
Kotak' research mapped the same sectors reacting differently in each index under consideration.
The brokerage's fiscal 2027 aggregate earnings estimates for the two indices outlined large positive contribution of the oil, gas & consumable fuels sector (ONGC) to the incremental profits of the Nifty-50 Index and large negative contribution of the same sector (HPCL) to the incremental profits of the Nifty Midcap 150 Index due to the same factor of high crude oil prices in FY2027.
Secondly, the brokerage pointed out 'high' share of banks in the incremental profits of the Nifty Midcap 150 Index due to low base
of IDFCFB and IIB in FY2026, as against ‘low' share of banks in the incremental profits of the Nifty-50 Index.
What Should Investors Know?
Kotak believes that from a general investment purpose, index earnings and valuation have a low utility, it outlined that the usefulness is even less in the case of of mid-cap. indices due to a large churn in the constituents of mid-cap indices because of their ‘artificial' nature, and dominant role of a few narratives and themes and related sectors and stocks at different points in time.
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