InvestorQ : How reliable is a mid cap strategy for long term wealth creation?
Riya Dwivedi made post

How reliable is a mid cap strategy for long term wealth creation?

Mahima Roy answered.
3 years ago

Mid caps are good to make money. The big question is how long you can really trust these companies. Remember the old market saying, “You make money in mid caps and store money in large caps”. In any rally, mid-caps display some unique features. Firstly, mid-caps are late to join any market rally, but they more than make up with their pace and ferocity. Look at the rally in the Nifty from August 2013 onwards. Mid caps virtually started participating only from mid-2014, although they made up with their fleet-footedness by 2016 and by 2017 the rally was many times over.

You can also decipher some unique trends in a mid cap stock when the market gets into a downturn. There are also some unique characteristics of mid-caps in a market downturn. They are normally the first and the hardest to get hit. In the carnage of 2008, most mid cap stocks gave away 90% of their value by the time large caps had given up to 50% of their value. Also mid-caps are very susceptible to liquidity issues. Tightening of rates by the RBI, higher margins and margin calls by brokers, higher haircut in funding can all be negatives for mid-cap stocks. Always be very careful when the mid caps and the small caps turn vulnerable. That is when they can cause the most damage for investors.