Mid-cap Stocks

The word ‘mid-cap’ refers to companies and stocks that sit between the large-cap and small-cap categories. Mid-caps are companies with a market capitalisation of more than Rs. 5,000 but less than Rs. 20,000 cr. Market capitalisation in simple terms refers to the aggregate market value of the company, which is obtained by multiplying its outstanding shares with the current stock price.

As companies’ market value increases or decreases through time, the capitalisation category they belong to also shifts in line.

Why to invest?

• Return potential- Given that most mid-cap companies are positioned in the middle of the growth graph; they have room for value appreciation and allow for substantial dividends too.

• Ease of growth- Mid-cap companies in India have a better scope of raising finance through credit in comparison to small-cap companies; thereby, enhancing their potential for growth and expansion.

• Considerable information- Unlike small-cap companies, companies with these stocks provide enough information on their financial health and history. This makes it easier to analyse companies from a mid-cap stocks list. You can thus effectively conclude on their growth potential and profitability to make an informed decision regarding your investment.

Features

• Diversity: Mid-cap shares lie on a broad spectrum, bordering both small-cap and large-cap stocks. These shares vary in terms of returns and risks entailed. Some mid-cap companies might be nearing developmental stage, and thus, might offer greater stability instead of returns; whereas some companies might have recently graduated from small-cap and therefore allow greater returns compared to stability.

• Liquid: Mid-cap stocks are relatively liquid compared to small-cap stocks. Companies with such stocks are well-known, and investors can trust their shares. Therefore, it becomes easier to find buyers during a sale at a fair price.

• Chance of growth: One of the most appealing characteristics of these stocks owned by mid-cap companies in India is that they have a high potential to enhance their profitability, productivity, and market share. Investors can expect such companies to become an overnight success during bullish market or market expansion, which will exponentially increase their returns.

Risks of investing in mid-cap stocks

• Volatility- Mid-caps are extremely sensitive to any market movements or events. They are high beta stocks and thus have an inherent risk of being volatile. When market valuations are soaring and markets are volatile, mid-caps tend to be more prone to price shocks. Mid-cap stocks are generally more volatile than large-cap stocks.

• Liquidity- Liquidity refers to the ease of buying or selling an investment quickly. Mid-cap stocks tend to have less liquidity as the demand for their stocks may be limited than larger-cap stocks.

Alternative Options

• Sovereign Bonds- These bonds are issued by the government and promise a regular source of income over a fixed period with minimum risk.

• Debt Funds- These funds are used to invest in fixed income securities such as debentures, bonds, treasury bills, etc. They provide steady income against comparatively lower risk.

Overview

Midcap stocks are of companies that command a market cap between Rs. 5,000 to Rs. 20,000 cr. While the potential for capital appreciation is higher in mid-cap stocks compared with large-cap stocks, the risk is also higher in line. A little amount of exposure to mid-cap equities is, however, required for a well-balanced portfolio. Before investing in a mid-cap stock, do your homework on the firm and only invest if you can digest market fluctuations.