Across the globe, equity benchmark indices are often viewed as a rational indicator of a country’s economy. In the case of India, the Nifty 50 index is considered a leading indicator of the booming economy and represents the weighted average of the top 50 companies by market capitalisation that are listed on the NSE.
The Nifty Next 50 index aims to measure the performance of the next 50 large-cap companies which come after the top 50 companies on the basis of free-float market capitalisation within the Nifty 100 universe. The selection of securities and weights are completely based on free-float market capitalisation.
For an investor looking to invest in such potential future names that are likely to be a part of the Nifty 50 index at today’s prices, the easiest approach would be investing in the Nifty Next 50 Index or the ETF that invests in the Nifty Next 50 Index. This is an easier solution rather than individually investing in the names. By investing in an ETF based on the Nifty Next 50 Index, an investor gets access to a portfolio that mimics the underlying index and delivers a return in line with the index minus tracking error.
Comprising 16 sectors, the index is a well-diversified portfolio of companies with weightages of any individual stock not exceeding 6.2 percent. In fact, the top three sectors account for 43 percent of exposure in the index. In terms of performance, the Nifty Next 50 Index has delivered 6.2 percent over the last one year, 18.5 percent over three years and 16.6 percent over a 10-year period. In the meanwhile, over the past 10 years, 21 companies belonging to the Nifty Next 50 Index have moved to the Nifty 50 Index which clearly underscores why investing in the Nifty Next 50 names could be beneficial for the overall portfolio. (Data as on July 31, 2022, Data Source: NSE)
The current composition of the Nifty Next 50 Index includes heavyweights from sectors such as financial services, FMCG, metals and mining and consumer services to name a few. Currently, the top 10 stocks are largely dominated by consumption-based stocks which are bound to benefit from the fast-growing domestic economy and attractive export opportunities arising out of India’s increasing manufacturing excellence in the global economy. As India transitions into a $5 trillion economy, these companies are well-positioned to benefit from the overall economic expansion in key domestic sectors. Another unique point of the index is that non-F&O stock cumulatively is capped at 15 percent on a quarterly basis and individual non-F&O stock is capped at 4.5 percent.
Units of the ETF can be easily purchased or liquidated at any time during trading hours. As a result, if you are an investor considering diversifying your portfolio beyond the top 50 Nifty names, then this offering is worth consideration. In fact, the lowest market capitalisation of any stock in the Nifty Next 50 Index still exceeds Rs.25,000 crore and is indicative of the quality of the stocks included.
By investing in a combination of the Nifty 50 ETF and Nifty Next 50 ETF, an investor in a low-cost manner can gain exposure to the top 100 names in the listed universe.
The author, Chintan Haria is the Head of Product Development & Strategy at ICICI Prudential AMC. Views expressed are personal.