Market indices are like barometers that track the market’s performance. They are hypothetical portfolios that represent a segment of the financial market. Nifty or Nifty50, is a leading market index in India. It comprises the stocks of the 50 largest large-cap companies from diversified sectors.
Nifty50 serves as a benchmark for the Indian equity market. If the underlying stocks of the index go up, the value of the index also increases. Conversely, if the stocks’ prices decline, the index will fall too.
Nifty NEXT 50 is another market index that tracks a broader market, comprising the second 50 large-cap stocks in terms of free-float market capitalization value.
This article provides insights on Nifty50 and Nifty Next 50, their significance, and their roles in tracking the performance of the Indian stock market.
What is Nifty50?
Nifty50 is a primary market index of the Indian stock market. Nifty stands for National Stock Exchange (NSE) Fifty. It comprises the top 50 largest company stocks on the NSE based on their free-float market capitalization.
Eligibility Criteria for Nifty50
Stocks are included based on their trading volume and free-float market capital—the current value of all the actively traded shares. Companies have to fulfill specific criteria to get included in the Nifty50.
- The company should have a minimum listing history of 1 month as of the cutoff date.
- Market impact cost is the best measure of the liquidity of a stock. It accurately reflects the costs faced when trading an index. For a stock to qualify for possible inclusion into the Nifty50, has traded at an average impact cost of 0.50% or less during the last six months for 90% of the observations, for a basket size of INR 100 Million
- Companies that are allowed to trade in the F&O segment are only eligible to be constituents of the index.
Nifty50 is rebalanced every 6 months based on the above criteria.
Read Also: Nifty Auto Stocks List With Weightage in 2024
How is Nifty50 Computed?
The Nifty50 is calculated using the free float formula.
Index value= Current Market Value / (1000 * Base Market Capital)
- Nifty is calculated on a base value of 1000.
- The base period for the Nifty50 index is 3rd November 1995 and base capital stands at Rs. 2.06 trillion
What is Nifty Next 50?
Nifty Next 50 is computed using the free float market capitalization method wherein the level of the index reflects the total free float market value of all the stocks in the index relative to a particular base market capitalization value. Nifty Next 50 Index can be used for a variety of purposes such as benchmarking fund portfolios, and launching index funds, ETFs, and structured products.
Eligibility Criteria for Nifty Next 50 Stocks
- Nifty Next 50 consists of 50 stocks from Nifty100 after excluding the stocks included in Nifty50.
- The cumulative weight of stocks that are not available for F&O trading is capped at 10%.
- The weightage of non-F&O trading stocks is capped at 4.5%.
Like Nifty50, Nifty Next 50 is also recalibrated every 6 months.
How Is Nifty Next 50 Computed?
The formula to calculate Nifty Next 50 is the same as Nifty50.
Which is,
Index value= Current Market Value / (1000 * Base Market Capital)
Read Also: Nifty 50 Stock List in 2024: Important Stocks
Nifty50 vs Nifty Next 50: Differences
Nifty50 and Nifty Next 50 both comprise 50 stocks. Although they fall into the category of large-cap indices, they are comparatively different. Here is an analysis of Nifty50 vs Nifty Next 50.
| Nifty50 | Nifty Next 50 | |
| Constituents | Nifty50 represents the top 50 companies based on their free float market capitalisation | Nifty Next 50 represents stocks of the next 50 large-cap companies |
| Diversification | As of 12 July 2024, Nifty50 had stocks from 13 sectors | Nifty Next 50 had stocks from 14 companies during the same period |
| 5-year Absolute Returns | 16.23% (As of 28 June 2024) | 22.28% (As of 28 June 2024) |
| Standard Deviation | 19.25 (updated of 28 June 2024) | 19.64 (updated of 28 June 2024) |
Nifty50 vs. Nifty Next 50: Which Is Better?
Although both indices track large-cap stocks, the Nifty Next 50 is slightly more volatile than the Nifty50. Nifty50 offers investment options in large-cap companies that offer better returns during a bullish market. Conversely, the Nifty Next 50 is more diversified, containing stocks of emerging blue-chip companies with significant growth potential. Ideally, one should spread their corpus between Nifty50 and Nifty Next 50 for better risk-adjusted returns.
Final Words Nifty50 and Nifty Next 50 are both major market indices. However, before investing in any fund, one should check the goals, investment horizon, and risk tolerance levels to make an informed decision.
