Midcap funds outperform large-cap funds on sustained asset inflows

Assets under management (AUM) of mid-cap funds have outperformed large-cap funds by a record 60 basis points, according to data from the Association of Mutual Funds In India (AMFI). At the moment, mid-cap funds constitute 12.9% of the total capital AUM Compared to 12.3% of their large-cap counterparts, mid-cap funds have emerged as the third-largest fund category after sector and flexible-cap funds. Historically, mid-cap funds’ share of assets under management has lagged behind large-cap funds by about 550 basis points. In 2020, large-cap funds held a maximum share of 20% in equity funds’ assets under management. Over the past year, their share has declined by 228 basis points, while that of mid-cap funds has increased by 30 basis points.

Last year, mid-cap funds’ assets under management (AUM) increased by 64% to Rs 3.8 trillion, which was significantly higher than the 36% growth in AUM of large-cap funds, which amounted to Rs 3.6 trillion. The growth can be attributed to new AUM. entries as well as market appreciation. Mid-cap funds reported an inflow of ₹24,438 crore during the past year compared to ₹7,287 crore for large-cap funds.

In addition, the Nifty 150 Midcap Index gained 55% in the 12 months to July 2024 compared with a 27.8% gain for the Nifty 50. On a risk-adjusted return basis, the midcap index has a Sharpe ratio of 2.58 compared to 1.55 for the Nifty 50. A higher Sharpe ratio implies the presence of higher returns, but not without higher risk.

Given the recent appreciation, valuations in the midcap segment look higher with lower dividend yields. The Nifty 150 Midcap index is trading at a price-earnings (P/E) multiple of 45, compared to the Nifty 50 index’s P/E of 23.4. Moreover, the former index has a dividend yield of 0.7%, which is almost half that of the Nifty 50.