In this paper, we show that in the Indian context, there is zero value premium (VP) among mid-market capitalisation (MC) portfolios and zero size premium (SP) among mid-price-to-book ratio (PB) portfolios. That is, in the mid-MC category, the low-PB stocks earn the same return as high-PB stocks; similarly, among the mid-PB stocks, the ones with low-MC earn the same return as those with high-MC. As we move away from the mid category, we observe significant VPs and SPs. More specifically, among low-MC stocks, there is positive VP (that is, low-PB stocks earn more than high-PB stocks), while in high-MC category, there is negative VP (low-PB stocks earn less than high-PB stocks). In the same way, among low-PB stocks, there is positive SP (low-MC stocks earn more than high-MC stocks), while, in high-PB category, there is negative SP (low-MC stocks earn less than high-MC stocks). Fama and French (1993) have come up with measures of VP and SP. Value, neutral, and growth stocks denote, respectively, low-PB, mid-PB, and high-PB stocks. They measure VP by excess return on value portfolio vis-a-vis growth portfolio. Similarly, small-cap, mid-cap, and big-cap stocks denote, respectively, low-MC, mid-MC, and high-MC stocks. Size premium is measured by them by the excess return of small-cap portfolio over big-cap portfolio. Using Indian data from 1995 to 2014, we find that though an overall VP or SP does not exist in India, VP exists for small-cap and big-cap portfolios, and SP for value and growth portfolios. Specifically, VP is significantly positive in small-cap portfolios, weakly evident (though often close to zero) in mid-cap portfolios, and significantly negative in big-cap portfolios. Similarly, SP is significantly positive in value portfolios, almost zero for neutral ones, and negative in growth portfolios. Thus, the mid-cap portfolio acts as a zero-premium benchmark for VP, while the neutral portfolio acts as a zero-premium benchmark for SP. On either side of the benchmark, there is a positive or negative premium. We are not aware of any work that finds the median (midcap or neutral) portfolio to be the zero-premium benchmark. We would like to iterate that our focus here is on the median portfolios and not on analysing VP or SP per se in the Indian context. We suggest that our medial portfolio analysis can be extended to other capital markets, including the USA.
