Adani Stocks Meltdown and Nifty Next 50 Index
(This is just for informational purpose, readers should do their own due diligence, consult their own financial adviser and this should not be construed as investment advice)
Since the release of Hindenburg Research report on Adani group on 24Jan2023, Nifty Next 50 index has suffered a greater loss than the Nifty 50 index. Nifty Next 50 has large- and mid-cap stocks, whereas Nifty 50 consists of mega- and large-cap stocks.
Between 24Jan2023 and now, Nifty 50 index lost 0.60 percent of its value, whereas Nifty Next 50 fell by 8.2 percent. There are five Adani group stocks in the Nifty Next 50 index with a total weight of more than 10 percent (details below) as at the end of Jan2023.
But the share of two Adani group stocks (namely, Adani Enterprises and Adani Ports & SEZ) in Nifty 50 index is only 1.64 percent. As Nifty Next 50 index has greater exposure to Adani group stocks, its loss is bigger than that of Nifty 50 in the past three weeks since the start of Adani stocks meltdown.
In addition, the five Adani stocks that are part of Nifty Next 50 declined more than the two Adani stocks in Nifty 50 index.
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Related Blogs:
Are Indian Stocks Immune to Adani Stocks Meltdown
Meltdown in Adani group Listed Stocks
Why the Divergence Between Sensex and Nifty 50 in Today's Trade?
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Interestingly, both the Nifty Midcap 100 and Nifty Small cap 100 indices have shown resilience despite the recent negativity surrounding the Adani group, which has become one of India's biggest conglomerates in recent years. These two indices have declined by 1.6 percent each in the past three weeks.
There was a time when I used to argue that passive mutual funds (index and exchange traded funds) based on Nifty Next 50 (formerly known as Junior Nifty index) were better than those of Nifty 50. My argument was based on superior diversification and lower concentration risks in Nifty Next 50 index.
My thesis is incorrect, because I did not consider the risk of the concentration of a particular group stocks to the overall index. Now, the rout in Adani group stocks in the past three weeks proved to be a big risk for Nifty Next 50 index.
The two images below will give a better view on how the fortunes of these two indices changed in the past three weeks >
As at the end of 24Jan2023 and 15Feb2023 >
As on 24Jan2023, Nifty 50 index's one-year total return (including dividends) was 7 percent and that of Nifty Next 50 was 4 percent. As at the end of 15Feb2023, Nifty 50's one-year total return is 5.1 percent versus Nifty Next 50's minus 5.7 percent. It seems three weeks is a long time in markets.
In financial markets, our views are humbled several times. As such, we need to change and challenge our assumptions.
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Read more:
Are Indian Stocks Immune to Adani stock Meltdown?
Meltdown in Adani group Listed Stocks
JP Morgan Guide to Markets
Why the Divergence Between Sensex and Nifty 50 in Today's Trade?Global Market Data: 2012 to 2022
Indian Stock Market Moves Fully to T+1 Settlement
NSE Indices Comparison 31Dec2022
BSE 500 vs S&P 500 Indices Compare 31Dec2022
Nifty 50 Index Yearly Movement 31Dec2022
India Up the Ladder in MSCI EM Index
New Rules on Ex-date and Record date
Mutual Fund Asset Class Returns 31Dec2022
Crisil Report - Big Shift in Financialisation
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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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He blogs at:
https://ramakrishnavadlamudi.blogspot.com/
Twitter @vrk100
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