Equity market growth far outpaces GDP growth
Over the last 10 years, India’s GDP has doubled from USD 2 trillion to nearly USD 4 trillion. This robust economic growth has been matched by a 3X surge in the aggregate market capitalisation of listed equities. Three key developments are expected to continue positively impacting the economy, corporate India, and capital markets:
- Structural Reforms – Stable macroeconomic policies, ease of doing business, global trade integration, tax reforms, financial inclusion (JAM Trinity), GST & RERA, rising credit penetration, and manufacturing incentives like PLI.
- Demographic Strengths – A young working population, urbanisation, and evolving consumption patterns.
- Strategic Investments – High public capex (PM Gati Shakti, Bharatmala, Sagarmala, National Infra Pipeline) and Digital Public Infrastructure (start-up ecosystem, AI & automation).
While these initiatives support overall structural growth, they are proving to be game changers for many mid-tier companies—especially those with strong track records and presence in sunrise sectors, OEMs, strategic business spin-offs, global subsidiaries, and technology-led enterprises.
Explosive market cap acceleration among mid-caps
Market cap data underscores the compelling growth story. Over the past five years, the 101st-ranked company (entry point for mid-cap classification) has grown its market cap by 3.5×, while the 250th-ranked firm has seen over 4× growth. Mid-caps offer a growth runway that many large-caps can’t match due to size and diversification constraints.
(Source: AMFI average market cap data as of Dec 2024)
Longevity of wealth creation: ~28× in two decades
Long-term data reinforces the potential: From April 1, 2005 to June 30, 2025, the Nifty Midcap 150 index has delivered 28× returns, compared to 16.1× for the Nifty 100. Globally, a similar trend is evident—S&P Mid Cap 400 rose ~30× vs 18.6× for the S&P 100 in the last 35 years.
(Source: ACEMF)
Risk-adjusted returns and volatility
Mid-caps balance the aggressive growth of small-caps with the relative stability of large-caps. With solid financials and proven business models, they tend to deliver superior alpha over time with reduced volatility. This makes them appealing for investors seeking long-term growth with moderate risk.
(Source: ACEMF)
Diversified growth and emerging industry leaders
Mid-cap firms often lead niche segments in sectors such as consumer discretionary, specialty chemicals, mid-tier tech, and regional banking.
- Leadership & Market Position – Many are #2 or #3 in their domains, showing pricing power and scale.
- Growth with Discipline – Rising ROEs and high margins signal sustainable performance.
- Sectors of Tomorrow – They are driving growth in digitalisation, infrastructure, healthcare, and domestic consumption.
This natural diversification reduces concentration risk and gives exposure to high-potential sectors not always represented in large-cap indices.
Why Now: A softening market, emerging opportunities
Recent corrections across equity markets, particularly in mid- and small-cap segments, offer a compelling entry point. Many quality mid-cap firms are well-positioned to benefit from India’s long-term structural boom—driven by domestic consumption, rural uplift, and global supply chain shifts favouring India, despite global macroeconomic and geopolitical pressures.
Introducing the Bank of India Mid-Cap Fund NFO
This open-ended equity scheme focuses on mid-cap companies, which tend to exhibit better growth prospects than large-caps—making them a strong wealth-building option for long-term investors, albeit with higher risk.
The fund uses a structured investment process and robust risk management to maintain diversification across stocks and sectors. Stock selection is based on development trajectory, financial strength, and scalability of the business model.
Mid-caps, with their growth potential, balanced risk-return profile, and attractive valuations, are emerging as a strong core allocation choice for investors with a long-term outlook.
(The author of the article is Mohit Bhatia, CEO, Bank of India Mutual Fund)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)