The Indian stock market is a dynamic ecosystem with various indices reflecting different aspects of its performance. Among these, the Nifty 50 has gained prominence as a benchmark for investors. However, there’s another index that deserves attention: the Nifty Total Market Index. In this comparative analysis, we’ll delve into the differences between these two indices, their constituents, and their implications for investors.

Nifty 50: The Blue-Chip Giants

The Nifty 50 comprises the top 50 blue-chip companies listed on the National Stock Exchange (NSE). It represents about 62% of the total free float market capitalisation of all the companies listed on the NSE as of September 30, 2022. The index is widely used as a proxy for the Indian stock market and a benchmark for active and passive funds. The Nifty 50 is also a part of the World Index and the Emerging Markets Index.

The Nifty 50 is a market capitalisation-weighted index, meaning that the weightage of each company is proportional to its market value. The index is rebalanced semi-annually, and the constituents are reviewed quarterly. The index has a base date of November 3, 1995, and a base value of 1000.

The Nifty 50 is dominated by the financial services and IT sectors, which together account for more than 50% of the index weightage. The other major sectors include oil and gas, consumer goods, automobiles, healthcare, and construction. Some of the most prominent companies in the Nifty 50 are HDFC Bank, Reliance Industries, ICICI Bank, Infosys, ITC, TCS, L&T, Axis Bank, Kotak Mahindra Bank, and Hindustan Unilever.

Nifty Total Market Index: The Broader Spectrum

The Nifty Total Market Index comprises the top 750 companies listed on the NSE across the large-cap, mid-cap, and small-cap segments. It represents a staggering 96% of the NSE’s total market capitalisation, making it one of the most comprehensive indices in India. The index offers a broader and deeper insight into the Indian stock market than the Nifty 50.

The Nifty Total Market Index is also a market capitalisation-weighted index, but with a capping factor of 5% for each company to ensure diversification. The index is rebalanced semi-annually, and the constituents are reviewed quarterly. The index has a base date of April 1, 2005, and a base value of 1000.

The Nifty Total Market Index covers a wider range of sectors than the Nifty 50, with more exposure to mid-cap and small-cap companies. The index has a lower concentration of financial services and IT sectors, and a higher representation of consumer durables, metals and mining, construction materials, chemicals, and services. Some of the notable companies in the Nifty Total Market Index are HDFC Bank, Reliance Industries, ICICI Bank, Infosys, ITC, TCS, L&T, Axis Bank, Kotak Mahindra Bank, Hindustan Unilever, Bajaj Finance, HCL Technologies, Maruti Suzuki, Asian Paints, and Sun Pharma.

Performance Comparison

Historically, the Nifty Total Market Index has outperformed the Nifty 50 since its inception. The Nifty Total Market Index has shown an average annual price growth of 12.99% since inception, while the Nifty 50 has grown by about 11.21% in price. Here’s a closer look at their growth numbers:

Period Nifty Total Market Index Nifty 50
Since Inception 12.99% 11.21%
Last 10 Years 13.64% 12.24%
Last 5 Years 15.01% 13.72%
Last 3 Years 20.06% 18.07%
Last 1 Year -0.67% -1.32%

Source: NSE (Data as on August 31, 2023)

Implications for Investors

For investors, both indices offer a snapshot of the Indian stock market. However, they have different implications depending on their risk appetite, return expectations, and investment horizon.

  • The Nifty 50 is ideal for investors who prefer stability and consistency over higher returns. The index consists of well-established and reputed companies that have proven track records and strong fundamentals. These companies are less volatile and more resilient to market fluctuations than smaller companies. They also offer regular dividends and steady earnings growth.
  • The Nifty Total Market Index is ideal for investors who are willing to take higher risks for higher returns. The index consists of companies of all sizes across various sectors that have high growth potential and innovation capabilities. These companies are more volatile and sensitive to market conditions than larger companies. They also offer lower dividends but higher capital appreciation.

Investors can choose to invest in either index through index funds or exchange-traded funds (ETFs) that track their performance. Alternatively, they can use these indices as benchmarks to compare their own portfolios or active funds.

Conclusion

The Nifty Total Market Index and the Nifty 50 are two of the most popular and widely followed indices in India. They offer different perspectives on the Indian stock market and cater to different types of investors. While the Nifty 50 represents the top 50 companies in India, the Nifty Total Market Index covers the top 750 companies across the large-cap, mid-cap, and small-cap segments. The Nifty Total Market Index has historically outperformed the Nifty 50 in terms of price growth, but it also entails higher risk and volatility. Investors can choose to invest in either index depending on their risk-return profile and investment objectives.

Please note:

  • GrowWiseis not registered with the Securities and Exchange Board of India (SEBI) as an investment advisor, research analyst, or portfolio manager.
  • The information published on this blog is presented for educational purposes only and should not be construed as financial advice.
  • We strongly recommend that you seek the advice of a qualified financial advisor before making any investment decisions.