NSE Indices Comparison 31Dec2021
(Update 12Jan2023 with data as of 31Dec2022 is available here)
This is a brief analysis of select broad indices of National Stock Exchange of India (NSE). The analysis is based on the fundamentals, returns, risk measures, stock weights and sector weights of the indices.
Let us look at the four indices of NSE, namely, Nifty 50, Nifty 100, Nifty 500 and Nifty Next 50. All the data are as at the end of 31st of December 2021.
Fundamentals
Table 1 shows the returns, risks and valuation measures of these four indices. For example, Nifty 50 index's five-year annualised return is 17.7 per cent versus 16 per cent for Nifty Next 50 index. The five-year standard deviation (a risk measure) for Nifty 50 is 18.3 per cent and it is the same for Nifty Next 50 index.
The price-earnings (PE) ratio and price-to-book (PB) ratio for Nifty 50 index are 24.1 and 4.4 respectively. And they are 22.9 and 4.3 for the Nifty Next 50 (formerly known as Junior Nifty). Based on these measures, Nifty 50 appears to be slightly more richly valued than Nifty Next 50 index as on 31Dec2021.
Table 1 > Fundamentals:
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Top 10 Stocks
This table 2 shows the share of top five and top 10 stocks in the indices. Concentration risk in Nifty 50 is much higher as compared to, say, Nifty 500. Of the four indices analysed, Nifty Next 50 has the lowest concentration risk.
The weights of top five and top 10 stocks in Nifty Next 50 index are 17.7 and 32.2 per cent respectively, which are much lower than the values relating to other three indices--Nifty 50, Nifty 100 and Nifty 500 (table 2 below).
Reliance Industries, Infosys and HDFC Bank are the dominant stocks in Nifty 50, Nifty 100 and Nifty 500. Nifty Next 50 index's top three stocks are Avenue Supermarts (DMart), Apollo Hospitals and Adani Enterprises.
Table 2 > NSE Indices Top 10 Stocks:
Top 10 Sectors
This table 3 describes the top three and five sectors in the indices and their weights. The top three sectors in Nifty 50 are Financial Services, Information Technology and Oil & Gas. But the top three sectors in Nifty 100 and Nifty 500 are Financial Services, Info Tech and Consumer goods.
In Nifty Next 50, the top three sectors are Financial services, consumer goods and metals (data as of 31Dec2021).
Table 3 > NSE Indices Top 10 Sectors:
Concentration risk
As the tables 2 and 3 indicate, Nifty Next 50 index offers much better diversification benefits (that is, if you believe in diversification) as compared to the other indices, such as, Nifty 50 and Nifty 100.
For Nifty Next 50, the weights of top 5 and 10 stocks are just 17.7 and 32.2 per cent respectively. But other indices have much higher respective weights (table 2 above).
When it comes sector concentration also, Nifty Next 50 has the lowest concentration in terms of top three and five sectors (table 3 above).
To sum up, Nifty Next 50 has lower concentration risk as compared to Nifty 50 index and even the other two indices. Both on the top stock and top sector parameters, Nifty Next 50 has the lowest concentration risk among the four indices analysed here.
Nifty 50 Free Float
This table 4 gives details of free float of top 10 stocks in Nifty 50. Free float is defined as the number of listed equity shares of a particular company that are readily available for trading on the stock exchange. Free float is nothing but number of shares held by investors other than the stake owned and controlled by promoters.
As shown in table 4, the promoters' stakes in HDFC Ltd, ICICI Bank, L&T Ltd and ITC Ltd are nil and as such their free float is 100 per cent--which means the total number of equity shares in these firms are available for trading.
Free float for Hindustan Lever is only 38 per cent as the remaining shares are held by the promoter Unilever Plc and its associate companies.
Most of the broad indices on NSE (even on BSE Limited) stock exchange are based on free float methodology.
Table 4 > Nifty 50 free float:
Table 5 > Nifty Next 50 free float:
By carefully analysing the return / risk parameters, valuation measures, concentration risk and diversification benefits, investors will be able to make better investment decisions and earn superior risk-adjusted returns over their time horizon.
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Raw data for these four NSE indices as on 31Dec2021 >
References:
My Tweet 20May2021 - compare ETFs - ETF - Nippon India ETF Junior BeES
My Tweet 20May2021 - compare NSE Indices : Nifty 50, Nifty 500 and Nifty Next 50
My Tweet 22May2021 - Compare Funds - ETFs: Nippon India ETF Junior BeES
Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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