NSE Emerging Indices Fundamentals Comparison 31Dec2025 13Jan2026
(The views expressed here are for information purposes only and should not be construed as a
recommendation or investment advice. While the author is a CFA Charterholder
with nearly 25 years of experience in financial markets, this content
is intended to share general insights and does not constitute financial
guidance. Please consult your financial
adviser before taking any investment decision. Safe to assume the author
has a vested
interest in stocks / investments discussed if any.)
(See bonus charts totaling three, comparing Nifty 50 and Nifty Next 50 and a snapshot on growing financial sector in India at the end of the blog)
This is an update of previous blog
named 'NSE Emerging Indices Fundamentals Comparison 30Jun2025' dated 28Jul2025.
Please see this earlier blog
named 'NSE Emerging Fundamentals Indices Comparison 31Mar2024' dated 30Apr2024' to know more about how these indices are
constructed.
Today's
blog takes a comprehensive overview of NSE's emerging indices, namely, Nifty Next 50, Nifty
Midcap 150 and Nifty Smallcap 250; and how they are doing in comparison to Nifty 500, a broad index and a proxy for India's stock market.
The latest data are as of 31st of December, 2025.
NSE or National Stock Exchange of India Limited is a premier stock exchange in India, closely followed by BSE Limited.
(article continues below)
-------------------------
Related articles:
NSE Indices
Calendar Year Returns 2006 to 2025 07Jan2026
BSE 500 vs Nifty 500: Same Market, Different Indices 02Jan2026
Nifty 50 Index Evolution Over a Decade 2015 to 2025 29Jul2025 (with updated data as of 31Dec2025)
Nifty Midcap 150 Quality 50 Index: Has Quality Lost Its Edge? 10Aug2025
Decoding the Nifty Midcap 150 Quality 50 Index: A Midcap Strategy Based on Fundamentals 07Aug2025
The Little Secret Behind Nifty Next 50 Index's Recent Success 13May2024
How to Buy Nifty Midcap 150 Index 03May2024
Analysis of Nifty 100 Low Volatility 30 Index 12Sep2023
-------------------------
2. NSE Emerging Indices Comparison
NSE Indices Limited is the index provider for NSE.
3. Fundamentals
Table
1 below presents the returns, risks and valuation measures of four
indices, namely, Nifty 500, Nifty Next 50, Nifty Midcap 150 and Nifty Smallcap 250 (all data are as of 31Dec2025) >
On
a one-year basis, Nifty 500 has provided better returns compared to
other three indices, namely, Nifty Next 50, Nifty Midcap 150 and Nifty
Smallcap 250.
Calendar year 2025 is particularly painful for mid- and small-cap stocks, while large-cap stocks providing stable returns, though India grossly underperformed other comparable markets.
On a three- and five-year basis, the total
return of Nifty Midcap 150 and Nifty Smallcap 250 have provided better returns compared to Nifty 500 and Nifty Next 50.
However, the past performance is no guarantee of future returns, as the cliche goes.
Compared to Nifty 500 index; Nifty Next 50, Nifty Midcap 150 and Nifty Smallcap 250 indices are more volatile and entail greater risks, as indicated by higher standard deviation.
Standard deviation is a statistical measure that quantifies how much individual values in a dataset typically differ from the mean, with a larger standard deviation indicating greater variability or dispersion in the data.
Another key risk measure is maximum drawdown of an index. The drawdown is discussed in another article: NSE Indices Calendar Year Returns 2006 to 2025.
When we compare the standard deviation and maximum drawdown of indices over a particular period, we can obtain a rough idea of the relative riskiness of the indices by observing both their overall volatility and the severity of their worst losses.
After observing the combined data, one can conclude that the Nifty Next 50, Nifty Midcap 150 and Nifty Smallcap 250 are significantly riskier compared to the Nifty 500.
Of course, they often come with higher alpha returns compared to a broad index like the Nifty 500, as evidenced by the past three-, five-year and 10-year returns of emerging indices such as the Nifty Next 50, Nifty Midcap 150 and Nifty Smallcap 250.
When
you observe the valuation ratios, namely, PE ratio, PB ratio and
dividend yield, Nifty Midcap 150 is the most overvalued index and Nifty
Next 50 the least richly valued.
Compared to the peak valuations of 30Sep2024, these four indices are less richly valued now.
4. Top 15 Stocks
Tables 2 and 3 below show the share of top five and top 10 stocks in the indices and list out top 15 stocks in the indices as on 31Dec2025.
Concentration risk profile of Nifty 500:
Nifty 500 shows the highest concentration risk among the four indices. The top five stocks account for about 23 per cent of the index, and the top 10 for over 33 per cent. This reflects the dominance of large, established companies, particularly in banking, IT, energy and telecom.
Concentration profile of Nifty Next 50:
Nifty Next 50 exhibits slightly lower concentration in the top five compared to Nifty 500, but the top 10 weight is broadly similar to Nifty 50. The constituent list is more diverse sectorally and includes companies closer to transitioning into large caps.
This creates a balance between concentration risk and growth potential, with individual stocks having meaningful but not excessive influence on index returns.
Concentration profile of Nifty Midcap 150:
Nifty Midcap 150 appears to show lower concentration risk at the stock level. The top 5 stocks contribute less than 10 per cent and the top 10 less than 18 per cent of the index. Mind you, the index has 150 stocks.
Concentration profile of Nifty Smallcap 250:
Nifty Smallcap 250 is the least concentrated index among the four. The top 5 and top 10 stocks together account for 9 and 14 per cent of the index respectively. As the name suggest, it has 250 stocks.
Concentration risk vs overall market risk:
Lower concentration risk in midcap and smallcap indices simply means that no single stock or a small group of stocks dominates index performance. With 150–250 constituents, stock-specific risk is well diversified. This reduces the impact of any one company’s failure on the index.
Volatility and business risk:
Despite better stock-level diversification, Nifty Midcap 150 and Nifty Smallcap 250 indices carry higher overall risk because the underlying companies are less mature, have more volatile earnings, lower liquidity and greater sensitivity to economic cycles.
These factors lead to higher price volatility and larger drawdowns at the index level.
Liquidity and valuation risk:
Mid- and small-cap stocks tend to face sharper corrections during market stress due to thinner liquidity and faster valuation de-rating. Even if individual stock weights are small, broad-based selling across the segment can drive significant index declines.
Comparison with Nifty 500:
Nifty 500 may be more concentrated, but its top constituents are large, stable, highly liquid businesses with predictable cash flows. This structural stability offsets concentration risk and results in lower volatility and drawdowns compared to mid- and small-cap indices.
This explains why mid- and small-caps are riskier despite being more diversified by number of stocks.
(please click on the charts to view better)
5. Top 10 Sectors
Tables 4 and 5 below delineate the weights of top three and five sectors in these NSE indices as at the end of 31Dec2025.
Financial Services is the largest sector in every index, ranging from 20.1 per cent in Nifty Next 50 to 31.6 per cent in Nifty 500, reflecting the financial sector’s central role in the Indian economy.
The top four sectors in Nifty Midcap 150 and Nifty Smallcap 250 are the same, though their order changes in each index. And they are:
1. financial services
2. capital goods
3. healthcare
4. automobile & auto component
In all four indices, the top three sectors' combined weight ranges from 40-50 per cent of total; whereas the three five sectors' combined weights are much narrow at 58-63 per cent.
The narrow gap between the top three and top five sectors in these four indices—about 11–18 per cent—shows that the top three sectors dominate index performance. This means index returns are heavily driven by a few key sectors, while the 4th and 5th sectors contribute only modestly.
As a result, sectoral risk is concentrated and shocks to the top sectors can significantly impact the index. Midcap and Smallcap indices have higher top-three sector weights, making them more sensitive to sector-driven volatility despite low stock-level concentration.
Overall, adding sectors beyond the top three provides limited additional diversification, highlighting the importance of monitoring sector-level trends.
Beyond Financial Services:
Nifty 500: IT and Oil & Gas have nearly 8 per cent each, with auto sector chipping in with 7.2 per cent.
Nifty Next 50: FMCG, Capital Goods, Power and Auto form the next largest contributors, with 9 to 10 per cent individual contribution.
Nifty Midcap 150: Capital Goods and Healthcare have second and third highest weight.
Nifty Smallcap 250: Healthcare, Capital Goods and Auto dominate after Financial Services, highlighting sectoral shifts in smaller companies.
(please click on the charts to view better)
6. What of the Future?
Prospects of emerging indices over a three-year horizon:
Over a three-year horizon, NSE emerging indices are likely to remain volatile and sensitive to earnings cycles, liquidity conditions and macroeconomic shocks. While return potential remains higher than the Nifty 500, interim drawdowns can be sharp, particularly for small-cap stocks.
Investors with shorter horizons should expect uneven performance and should be selective or stagger allocations.
Prospects of emerging indices over a five-year horizon:
Over five years, the historical data support a more constructive view. Earnings growth, market re-rating and the structural expansion of mid- and small-cap companies have historically translated into superior compounded returns.
While volatility will persist, the probability of alpha generation improves with time. Nifty Next 50 and Nifty Midcap 150 appear better positioned on a risk-adjusted basis, while Nifty Smallcap 250 offers the highest upside potential but with the greatest risk.
Overall conclusion:
The data confirm that Nifty Next 50, Nifty Midcap 150 and Nifty Smallcap 250 are significantly riskier than the Nifty 500, but they have also delivered superior long-term returns.
For investors with adequate risk tolerance and a longer investment horizon, emerging indices can play an important role in enhancing portfolio returns, while the Nifty 500 remains a more stable core allocation.
(the blog is not yet completed; please bear with me till I complete it, which can take another 2 to 3 hours)
(This
is just for educational purposes; and should not be construed as
investment recommendation. Readers should consult their own financial
advisers before considering any investments.)
- - -
----------------
References and additional data:
----------------
Read more:
Who is Eating my Gold ETF Return? (gold data / gold ETF data)
NSE Indices Calendar Year Returns 2006 to 2025 07Jan2026
FPIs Said Goodbye, Retail Kept Mum, DIIs Stayed Strong: India’s 2025 Market Story 02Jan2026
BSE 500 versus Nifty 500: Same Market, Different Indices 02Jan2026
Central Banks Fuel Gold Speculation: Risking Pain for Ordinary People 23Dec2025
Hedge Your Wealth: Protecting Your Portfolio Against Rupee Depreciation 20Dec2025
Tracking the Dollar Index to Understand Dollar-Rupee Moves 18Dec2025
How Often Does a Falling Rupee Drag the Sensex Down? The Surprising Patterns 12Dec2025
NSE's Backtesting Claims Child Indices Beat Parent Indices - But Does It Hold in Real World? 09Dec2025
-------------------
Disclosure: I've got a vested interest
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.
