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Mid Cap Stocks

Industry experts suggest mid-caps as a good investment option. After all, they can produce better returns because they are quicker to act than large caps and more financially stable than small caps. In recent years, mid-cap stocks have outperformed both their large-cap and small-cap peers with very little added risk.

What are the Mid-cap Stocks?

Mid-cap companies as the name indicate, fall right in the middle, between large and small-cap companies. Mid-cap stocks are the respective shares of the companies that comprise a market capitalization in between Rs. 5,000 Crore to Rs.20,000 Crore. As per SEBI, the listed companies which are ranked from 101 to 250 company in the Indian stock exchanges (NSE & BSE) in the terms of market capitalization are said to be Mid-Cap Stocks. Bharat Electronics, Exide Industries, Bharat Forge, etc. are some of the Mid-cap stocks. Nifty has a benchmark Mid-cap Index in India known as Nifty Midcap 50 which holds the top 50 most traded mid-cap stocks in the market.

The Drawbacks of Mid-cap stocks are:

Value-Trap: A value trap is when a company is constantly operating with low profits and with limited cash flow. The company is in a stagnant position. Mid-cap companies, especially the ones with low ranking are prone to value-trap and may no longer be traded if this continues for a longer time.

Inadequate resources: Compared to Large-cap companies, Mid-cap companies are having less efficient managerial and organizational infrastructure. Therefore, even though they have a good amount of profits, they are not well equipped to utilize it well.

Effect of economic crisis: Most of the mid-cap companies don’t have enough experience to pass through an economic crisis or downtrend in market cycles. Thus, when searching for the best mid-cap stocks we should analyze the financial history of the company.

What are the Features of Mid-Cap Stocks?

The Key features of Mid-cap Stocks are:

Diversity: Mid-cap stocks lie in a broad spectrum, these stocks differ in terms of risks associated and returns. Some of the mid-cap stocks might be going to reach their developmental stage and hence, they might offer greater stability with minimal returns, while some companies might be in a growing phase and provide greater returns.

High chances of growth: Mid-cap stocks companies have a high potential to enhance their profitability, productivity, and market share. Investors can expect an overnight profit from these stocks during an uptrend cycle or a bullish market.

Moderate risk: Mid-cap stocks have a lower impact of market volatility and fluctuations compared to small-cap stocks and greater impact compared to large-cap stocks. Hence, they offer less stability during bearish markets.

Liquid: Mid-cap stocks are relatively liquid compared to small-cap stocks.

What are the Benefits of Investing in Mid-Cap Stocks?

Some of the reasons why you should invest in Mid-cap stocks:

Ease of growth: Mid-cap companies have a higher chance of raising funds through credit than small-cap companies, which improves their chances of growth and potential.

Return potential: Mid-cap stocks have higher chances of value appreciation and allowance for substantial dividends.

Less analyzed: Mid-cap stocks are often less analyzed compared to large-cap stocks which increases the chances of getting these stocks at low pricing.

Considerable information: Compared to small-cap companies, mid-cap companies provide enough information for their investors which makes it easier to analyze the company.

What are the Drawbacks of Mid-cap Stocks

The Drawbacks of Mid-cap stocks are:

Value-Trap: A value trap is when a company is constantly operating with low profits and with limited cash flow. The company is in a stagnant position. Mid-cap companies, especially the ones with low ranking are prone to value-trap and may no longer be traded if this continues for a longer time.

Inadequate resources: Compared to Large-cap companies, Mid-cap companies are having less efficient managerial and organizational infrastructure. Therefore, even though they have a good amount of profits, they are not well equipped to utilize it well.

Effect of economic crisis: Most of the mid-cap companies don’t have enough experience to pass through an economic crisis or downtrend in market cycles. Thus, when searching for the best mid-cap stocks we should analyze the financial history of the company.

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