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Mid Cap Stocks

What are mid-cap stocks?

Stocks of companies whose market capitalization is between Rs. 5,000 Crore and Rs. 20,000 crore can be categorized as mid-cap stocks.

The formula for market capitalization is :-
Current stock price * Number of shares outstanding

So, for example, if the current share price of a company is Rs. 600 and the number of shares outstanding is 11 crore, then the market capitalization (market cap) would be:- Rs. 6,600 crores. ( 600 * 11 )

Usually, a mid-cap stock’s market value is around one-fifth of large-cap stocks. Mid-cap stocks are comparatively more volatile than large-cap stocks. However, they are less riskier than small-cap stocks. They are smaller than large-cap stocks on several parameters such as revenues, number of employees, client base and size.
Mid-cap stocks are preferred by investors who are seeking better returns than the ones offered by large caps. These investors also aren’t risk-averse and can stomach the volatility experienced by mid-cap stocks. Information about mid-cap companies isn’t freely available as it would be for large-cap companies. Hence it becomes difficult to thoroughly analyse the future prospects of a mid-cap stock. This results in conservative investors avoiding mid-cap stocks.
Some of the leading mid-cap indices include NIFTY Midcap 50, NIFTY Midcap 100, S&P BSE Midcap etc.

How to buy mid-cap stocks?

There are various portals through which investors can discover mid-cap stocks list by entering relevant filters. Investors can research the fundamentals of such mid-caps and start investing by buying mid cap shares.
Alternatively, investors can shortlist highly rated mid-cap mutual funds and begin investing in them. Mid-cap mutual funds invest in stocks of mid-cap companies. Those who aren’t well versed with investing directly in stocks can follow this route.
Passive investors can also consider an exchange traded fund that focusses on midcaps.

Here are some of the reasons to buy mid-cap stocks:

Potential to be large caps

Today’s mid cap companies have the potential to become tomorrow’s large cap companies. By investing in them when they are mid caps, the investor can take advantage of the returns which mid cap stocks would deliver during their growth phase.

Portfolio diversification

A portfolio with primarily large-cap stocks would not be able to deliver aggressive returns. Including mid-cap stocks would enable the portfolio to generate higher returns as the cumulative annual growth rate (CAGR) offered by mid-cap stocks could be much better than large-cap stocks. This is because large-cap stocks tend to have a conservative growth rate.

Suitable for mid-term goals

If an investor wishes to purchase a car after 5-6 years or plan an international holiday in 4-5 years, mid-cap stocks could be considered. Mid-cap stocks tend to offer healthy returns over 4-5 years.