Nifty 50 vs Nifty Next 50 vs Nifty 100

| July 25, 2024


Introduction

Did you know that the Nifty 50, which comprises India's top 50 companies, represents nearly 66% of the total market capitalisation on the NSE? For novice investors diving into the Indian stock market, understanding indices like the Nifty 50, Nifty Next 50, and Nifty 100 is crucial. These indices track the market's performance and serve as benchmarks for various investment products.

Let’s compare these indices. According to India's National Stock Exchange (NSE), these indices reflect the overall market performance and provide investors with insights into the most significant sectors of the Indian economy.


Demystifying the Nifty 50 - The Leading Benchmark Index in India

The Nifty 50 is India's flagship index of the National Stock Exchange (NSE). It represents the weighted average of the 50 largest Indian companies listed on the NSE. The companies in the Nifty 50 are leaders in their respective sectors, and the index provides a snapshot of the Indian economy.

Key Features of Nifty 50

  • Market capitalisation: It uses the free-float market capitalisation method to calculate the index, reflecting the market value of its constituent companies.
  • Sector representation: The index includes companies from multiple sectors, with significant weight in Financial Services (34.44%), Oil & Gas (12.56%), and Information Technology (12.52%). (As of June 2024)
  • Rebalancing and governance: The Nifty 50 is rebalanced semi-annually, with a professional team managing the index under a three-tier governance structure ensuring accuracy and reliability.
  • Eligibility criteria: Stocks must have traded at an average impact cost of 0.50% or less for 90% of observations over the last six months and be eligible for trading in the Futures & Options (F&O) segment.
  • Top constituents by weightage: Major companies include HDFC Bank Ltd. (11.95%), Reliance Industries Ltd. (9.98%), and ICICI Bank Ltd. (7.95%). (As of June 2024)

Also Read: How is the NSE Nifty 50 Index Calculated?





Demystifying Nifty Next 50 - The Bench Strength of the Indian Stock Market

The Nifty Next 50 is the index of the next 50 companies beyond the Nifty 50. These companies represent the rising stars of the Indian stock market and are potential candidates to be included in the Nifty 50 in the future.

Key Features of Nifty Next 50

  • Weight Capping: The cumulative weight of non-F&O (Futures and Options) stocks in the index is capped at 10% during quarterly rebalancing. Additionally, individual non-F&O stocks are capped at 4.5%.
  • Quarterly Rebalancing: The index is rebalanced quarterly on the last trading day of March, June, September, and December. During rebalancing, the capping factor of stocks is realigned based on their closing prices three days prior to the rebalance date (T-3).
  • Market Coverage: By including the balance 50 companies from the Nifty 100, the Nifty Next 50 index covers a broad spectrum of significant and liquid companies in the Indian market, which are on the cusp of entering the top 50.
  • Eligibility Criteria: To be eligible for inclusion in the Nifty Next 50 index, a stock must be part of the Nifty 100 index but not part of the Nifty 50.




Demystifying Nifty 100 - A Comprehensive Overview of the Indian Stock Market

The Nifty 100 combines the Nifty 50 and Nifty Next 50, offering a comprehensive view of the top 100 companies listed on the NSE. An extensive index includes market leaders and potential leaders, making it a broad indicator of the market's performance.

Key Features of Nifty 100

  1. Sector Representation: The Nifty 100 includes companies from various sectors, ensuring a diversified representation of the Indian economy and mitigating the risks associated with sector-specific fluctuations.
  2. Liquidity: Companies included in the Nifty 100 index are among the most liquid in the market, making the index a reliable benchmark for fund portfolios and investment products.
  3. Benchmarking: The Nifty 100 is widely used as a benchmark for various financial products such as mutual funds, exchange-traded funds (ETFs), and structured products, helping investors track the performance of large-cap stocks.
  4. Eligibility: To be part of the Nifty 100, a company must be one of the top 100 companies by full market capitalisation from the Nifty 500, ensuring that only significant and influential companies are included in the index.


Nifty 50 vs Nifty Next 50 vs Nifty 100

Let's take a look at the differences in the table below:




Parameter

Nifty 50

Nifty Next 50

Nifty 100

Risks

Lower risk due to inclusion of large, established companies

Moderate risk with potential for higher volatility

Diversified risk across top 100 companies

Returns

Stable returns over the long term

Potentially higher returns than Nifty 50 due to growth prospects

Balanced returns, combining stability of Nifty 50 and growth of Nifty Next 50

Historical Performance

Strong historical performance with consistent growth

Good historical performance, though more volatile than Nifty 50

Strong historical performance capturing the top 100 companies' growth

Market Capitalisation

Top 50 companies by free float market capitalisation

Next 50 companies after Nifty 50 by free float market capitalisation

Top 100 companies by full market capitalisation from Nifty 500

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The Serious Truth You Should Know About Nifty

During the financial year 2020-2021, the Nifty 50 delivered a return of 72.6%, highlighting its resilience during the post-pandemic recovery phase. In contrast, the Nifty Next 50 saw a return of 81.1% during the same period, reflecting the growth potential of emerging companies.

Conclusion

Understanding the Nifty 50, Nifty Next 50, and Nifty 100 is fundamental for any investor navigating the Indian stock market. Each index serves a unique purpose, catering to different investment needs and strategies. By comprehending their differences and strengths, you can make more informed investment decisions. For more detailed insights and investment tips, visit the Sharekhan Knowledge Centre.

Frequently Asked Questions

The Nifty 100 index includes companies from various sectors, providing a diversified representation of the Indian economy. This diversification helps mitigate sector-specific risks and ensures the index reflects the overall market conditions, leading to more stable performance.
You can invest in the Nifty 50 index through mutual funds, ETFs, or Nifty 50 futures.
The Nifty Next 50 index has a capping mechanism where the cumulative weight of non-F&O stocks is capped at 10%, and individual non-F&O stocks are capped at 4.5%. This ensures no single stock or a group of stocks dominates the index, maintaining a balanced and diversified portfolio.
The top 3 stocks listed in the Nifty 50 are HDFC Bank, Reliance Industries, and ICICI Bank.

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