Nifty 50
The article challenges the Nifty 50, the most widely used indicator of India’s stock market performance, given the country’s rapid growth and expanding investment opportunities.
India’s emergence as a major economic force is changing not just its local markets but also its place in the world economy. India’s GDP is expected to rise from being ranked tenth in 2014 to third place by 2027.
This essay argues against the Nifty, the most widely used indicator of India’s stock market performance, given that the nation is rapidly developing and offers more opportunities for investment.
What will India look like in 2050?
With a projected nominal GDP of $25 trillion by 2050, India is likely to rank third in the world’s economies. This growth is consistent with the last forty years of economic expansion in the United States.
Compared to mid- and small-cap enterprises in India, the average size of larger-cap corporations has grown by 2x during the past five years. This is predicted to increase by a factor of 25 by 2050.
An average small-cap firm will be valued more than 2 lakh crore as a result of this. Since smaller businesses account for the majority of incremental growth, having them in your portfolio becomes crucial. What is the future performance of the Nifty 50?
Small coverage of the market
Previously serving as a gauge of India’s economic health, the Nifty 50 now only represents 51% of the country’s listed market. India had a few big corporations when the Nifty was established in the early 1990s, so it made sense at the time.
Indeed, ten years ago, the Nifty 50 covered about sixty percent of the market. Its significance has decreased and will eventually drop to less than 50%.
As such, you are only exposed to around half of the Indian market with the Nifty 50. This stands in sharp contrast to larger indices like the Nifty 500, which captures more than 90% of market capitalization and provides a thorough understanding of the Indian economy.
The need for more inclusive indexes is highlighted by the Nifty 50’s decreasing coverage, which shows its waning value as a market representative.
Less sector diversification
Diversification across sectors is essential to capture the complexity of economic growth. The composition of the Nifty 50 restricts its capacity to represent the sectoral diversity of the economy because of its increased concentration in fewer sectors. Only 14 of India’s 21 identified industries are represented in the Nifty 50.
Betting on just the top 10 stocks
With the top 10 stocks making up 58.4% of the Nifty 50’s composition, it is clear that concentration risk exists in this index. This is in stark contrast to the Nifty 500, which shows a more balanced approach with the top 10 stocks representing 37.4%.
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