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Kotak says Nifty midcap indices are of low investment utility

Kotak says Nifty Midcap 150 has seen heavy turnover, with only 46 stocks consistently in the index from FY22 to the first half of FY27 and 275 unique names across FY22 to FY26.

Reported · Written up by our desk · Emerging Markets

Kotak Institutional Equities argues that using mid-cap indices, including India’s Nifty Midcap 150, has low utility as investment tools because their composition changes too frequently to support meaningful comparisons over time, according to a strategy report dated 19 September.

In the note, Kotak describes mid-cap indices as “mechanical” and “restrictive”: they mechanically reconstitute as constituents change frequently, and they are restrictive because the index’s limited number of stocks can create excessive concentration in one or a few sectors or themes.

Kotak also links index relevance problems to sector swings, saying top-down earnings and valuation exercises have limited usefulness when sector dominance shifts and sentiment-driven “narratives” cause exaggerated moves in select stocks.

On turnover, Kotak says only 46 stocks have been part of the Nifty Midcap 150 consistently from FY22 through the first half of FY27, and that as many as 275 unique stocks have been included over FY22 to FY26, undermining historical backtests based on earnings growth or valuation multiples.

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