Largecap stocks: How to solve for the ‘missing’ middle order?

I recently asked ChatGPT to name some of the most underrated cricketers of all-time.

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Source: ChatGPT

Interestingly, the response it gave had one common thread: all of them were middle-order players.

While GPT’s responses may vary based on timing and prompts, one thing seems to be pretty clear: in a world obsessed with flashy openers, flamboyant power hitters and lightning-fast bowlers, the middle-order players often end up not getting the recognition they deserve. Yet, it’s these players who play a pivotal role in helping teams win tournaments. They bring balance to the team with their dependable run-scoring, stellar fielding, and sharp bowling skills.

But what does this have to do with investing?

Given the equity market volatility in recent months, there seems to be a renewed interest in large cap stocks.

At first glance, it looks like large cap investors have a wide variety of options – perhaps too many - with indices such as Nifty 50, BSE Sensex, Nifty Next 50, Nifty 100 and Nifty Top 10 Equal Weight

However, a closer look reveals a gap – much like in cricket, the middle segment of large-caps often goes underrepresented in most indices.

To understand this better, let’s look at the current weightage of companies ranked from 31 to 60 based on market capitalization in some of these indices.



Source: MFI Explorer, DSP MF. Data as of 31 Dec 2024.

This ‘middle-order’ segment houses well-known market leaders and challengers with potential for future growth. Some of the current constituents of this segment include India’s largest two-wheeler manufacturer, leading apparel retailer, largest oil & gas producer, largest hospital chain, leading private sector insurer etc. This makes it a segment that cannot be overlooked.

So, how can one get exposure to these set of companies?

Enter BSE Sensex Next 30!

BSE Sensex Next 30 Index offers exposure to the 30 largest companies beyond BSE Sensex making it an ideal option to play the elusive middle segment within large caps.

The index has historically been very well-diversified. While Financial Services sector takes the top spot in terms of weightage, the exposure at 19% is much lower than 35-38% allocation in Nifty 50 and BSE Sensex. Consumer Discretionary & Commodities closely follow at 18% each. Other sectors such as Energy (10%), Healthcare (10%), FMCG (8%), and Industrials (8%) also have sizeable exposure.

Further, BSE Sensex Next 30 Index has historically been home to strong wealth creators with the potential to move up to BSE Sensex. In fact, 20 companies from this index have done just that over the last decade.

But have these companies done well as a portfolio?

In the past 10 years, BSE Sensex Next 30 Index has delivered an annualized return of 14.4% compared to 12.4% of BSE Sensex. Further, it has also outperformed BSE Sensex and Nifty 50 in 7 out of the last 10 years.

But as the saying goes – there is no free lunch. BSE Sensex Next 30’s potential for superior performance comes with the rider of higher risk. The index has historically gone through sharper and longer drawdowns than other major large cap indices. For example, during the Covid crash, BSE Sensex Next 30 had a higher fall of 45% from its previous peak compared to BSE Sensex fall of 38%.

This brings us to the final question.

Is a good time to invest in this index?

In the last three years, large caps have experienced a sharper underperformance versus mid and small caps. BSE Sensex Next 30 reflects this trend having underperformed BSE MidSmallCap by 7.5% on an annualized basis as on 31 Dec 2024. Historically, such levels of underperformance have presented a good entry point for investing in this index.

The index is also currently relatively better placed in terms of valuations. The price to earnings stands at 20x which is in line with its historical average.

And given its low overlap with Nifty and Nifty Next 50 (median historical overlap of 15% and 25% respectively), BSE Sensex Next 30 Index is also suitable for investors who have already invested in large caps.

Summing it up

BSE Sensex Next 30 Index offers a differentiated exposure to large caps. And if you are looking to add large caps to your portfolio, this might be worth a closer look.

The author is Product Manager, DSP Mutual Fund