Photo courtesy Anna Nekrashevich.
The world over every field has its own inspirational stories. If we take Bollywood in the 1950s the three top stars were Dilip Kumar, Raj Kapoor, and Dev Anand. Their presence in the movies worked wonders and set new box office records. When they reached the twilight of their career the baton passed on to Rajesh Khanna, Amitabh Bachchan, and Dharmendra in the seventies. These stars aspired to match the acting prowess of the earlier stars, and when their time came were equally successful. The next generation of stars was Anil Kapoor, Jackie Shroff, and Sunny Deol. Every generation set a benchmark that the later generation aspired to beat. They were followed by the Khans and Akshay Kumar and the present generation has Ranbeer Kapoor and Ranbir Singh. Each star attempted to create a new milestone by trying to be versatile.
Similar to the movies, we have Nifty 50 which is the top 50 stocks in terms of market capitalization in the stock markets and then we have the Nifty Next 50 stocks which are the next 50 stocks and aspire to replace some Nifty 50 stocks in the near future. These are the potential candidates for inclusion in Nifty 50. Both Nifty 50 and Nifty Next 50 constitute the Nifty 100.
The data shows that out of the 75 companies that have moved to the Nifty 50 index in the last 19 years, 51 have been from the Nifty Next 50 Index. The constituent list of the Nifty Next 50 companies is revised twice every year which is in July and December.
What is the Nifty Next 50 Index?
- The Nifty Next 50 Index aims to measure the performance of the next 50 large-cap companies that come after the top 50 companies in terms of free-float market capitalization.
- The selection of securities and weights is based on free-float market capitalization.
- The base date of the Index is November 3, 1996, and the base value is 1000.
- The Nifty Next 50 index has exposure to 14 sectors and 11 of these sectors have an individual weight of less than 10% each, with the top 5 sectors accounting for 60% exposure. It is a well-diversified index.
Nifty Next 50 is less concentrated with respect to the stocks when comparing the two indices. The top ten holdings in Nifty Next 50 come to 33% while the top ten holdings in Nifty 50 represent 58.3 percent of the index. Some of the top holdings in Nifty 50 may cross the 10 percent weightage of the index but none of the stocks in Nifty Next 50 cross 5 percent of the index. The result is that Nifty Next 50 outperforms when the broader market participates while the Nifty 50 outperforms when there is a polarized market. Investors who prefer cyclical with high beta can invest in Nifty 50, while those who want steady compounding should choose Nifty Next 50 as it has a higher allocation to defensives.
Nifty Next 50 index consists of steady compounders that could emerge as blue chips in the near future. It has a good number of stocks that are in the new-age sectors
Sector representation of Nifty Next 50 Index-
The simplest way to invest in The Nifty Next 50 index is to choose an index fund or an ETF that tracks this index. At present 15 funds track the Nifty Next 50 index out of which six are ETFs and nine are index funds.
Nifty Next 50 returns-
Advantages of investing in the Nifty Next 50 index-
1) The Nifty Next 50 index has better returns than the Nifty 50 index. So a person can consider investing in the index.
2) The top holdings of the Nifty Next 5o index are in companies having consistent growth and this provides for a steady compounding of returns.
3) The top holdings of Nifty Next 50 are diversified over a larger number of stocks as compared to Nifty 50. So in a broad-based rally, the Nifty 50 outperforms, and only in a polarized rally does the Nifty 50 outperform.
4) The companies over a period of years graduate from Nifty Next 50 to Nifty 50 when they perform well and these are considered the future blue chips. This is the reason why Nifty Next 50 stocks are the favorite hunting ground for fund managers.
Nifty Next 50 consists of large-cap companies and is a potential candidate for inclusion in Nifty 50 in the future. The portfolio of stocks in this index is more diversified than the Nifty 50 stocks and has outperformed the Nifty 50 since inception. Therefore Investing in the Nifty Next 50 index can be a good investment strategy considering the past returns.
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