When tracking or trading the Indian stock market have you ever faced a day when the Nifty 50 is up, say one or two per cent, but your portfolio is all roses? Or that index is taking a plunge, and news outlets are going all crazy, but surprisingly your portfolio is not affected much. You must have gone through this, or you might someday.
In this article, we’ll look at why this happens and figure out how the Nifty 50 might not show us the complete market picture. We’ll also explore what other options we have.
Nifty 50 index
First, NSE picks 50 top companies that represent different parts of the economy. Then, they use these companies to make an index by giving them weights based on how big they are in terms of market value. This index is the Nifty 50. They created this index to get a general idea of where the economy and stock markets are going by keeping an eye on the best and biggest companies from various sectors.
Also read: The role of stock weightage in stock market indices
As of March 2024, there are over 2400 stocks listed on the National Stock Exchange, the question is are fifty stocks enough to represent the entire stock market? Let us find out.
Does Nifty 50 give a clear picture of the entire stock market?
The answer is both yes and no. Let us understand this from both perspectives.
The fifty companies included in the Nifty 50 index made up 54% of the total capitalisation of all stocks listed on the NSE combined as of 30th September 2024. This gives not a complete but a pretty good long-term picture of the entire stock market.
Also, very recently the Securities and Exchange Board of India has banned weekly index options for all the indexes except Nifty 50. This move will lead to more traders trading Nifty 50 derivatives than before. Since more traders will enter the Nifty derivatives market a more clear picture and better pricing will take place. This will help in clarifying where this index is expected to head in the short term.
Also read: How to trade options
The Nifty50 index has its vices too. For example, as of 25th November 2024, HDFC bank had a 12.11% weightage in this index. For example, if someday there is news due to which the HDFC stock plunges 10% whereas the rest of the market is unaffected, this would push the index down, while most other stocks might be rising.
This happens regularly in the market when one or two heavy-weight sectors are underperforming it pushes the index down even though the rest of the market is doing just fine. For an outsider, this creates an illusion that the entire market is in shambles. Is there a better index than Nifty 50 that can give us a more clear picture of the market? Let us find out.
Also read: SEBI’s quasi-powers: Keeping India’s securities market ethical
Nifty Total market index
To get a more comprehensive view of the market, the Nifty Total market index can be used. This index comprises 750 stocks, 500 stocks from the Nifty 500 index that includes the top 500 stocks based on market capitalisation, and 250 stocks from the Nifty microcap 250 index. Nifty microcap constitutes the top 250 companies after the Nifty500.
As of 30th September 2024, Nifty 500 alone represents 92% of the total market capitalisation of all the stocks combined. The total market index gives a clearer picture of where the economy is headed long term and is less affected by negative movements in a particular stock or industry as compared to the Nifty50 index. Now let us see how the Nifty 50 and Nifty total market index have performed in the past.
Nifty 50 Vs Nifty total market index constituents & returns
Comparison of Nifty 50 and Nifty total Market Index
| Aspect | Nifty 50 | Nifty Total market index |
| No of companies | 50 | 750 |
| Managed by | NSE | NSE |
| Market coverage | Large-cap stocks only | Large, mid & small cap stocks |
| Liquidity | All stocks: Highly liquid | Mixed liquidity |
Top constituents by weightage in Nifty 50 & Nifty Total market index (as of October 31, 2024)
| Name of Stock | Nifty 50 weightage (%) | Nifty Total MarketWeightage (%) |
| HDFC Bank ltd. | 12.11% | 6.82% |
| ICICI Bank ltd. | 8.38% | 4.72% |
| Reliance Industries ltd. | 8.31% | 4.68% |
| Infosys ltd | 5.82% | 3.28% |
| ITC ltd | 4.18% | 2.36% |
| Bharti Airtel ltd. | 3.98% | 2.24% |
| Larsen & Toubro ltd. | 3.92% | 2.21% |
| TCS ltd. | 3.73% | 2.10% |
| Axis Bank ltd | 3.04% | 1.71% |
| SBI ltd. | 2.90% | 1.63% |
Source: Nifty 50 Factsheet & Nifty total Market cap Factsheet
Since both these indices are market capitalisation weighted, their top constituent stocks are the same, just the weightage differs. It can be clearly seen that any stock-specific move will affect the Nifty 50 more as compared to the Nifty total market index.
% CAGR return of Nifty 50 and Nifty total market index over the past 1, 3, 5 and 10 years (as of November 28, 2024)
| Index | 1-year (%) | 3-year (%) | 5-year (%) | 10-year (%) |
| Nifty 50 | 21.65% | 13.32% | 15.83% | 12.14% |
| Nifty total market | 28.53% | 16.99% | 19.68% | 14.06% |
Source: NSE website
Nifty total market cap has shown better returns than Nifty50 over all the selected time frames.
Bottomline
After comparing the Nifty total market index vs the Nifty 50 index, we can conclude that the Nifty total market index gives a better picture of long-term stock market trends. But, Nifty 50 can be a better indicator of price for short term and price discovery because it is heavily traded in the futures and options market.
FAQs
1 – What is the Nifty 50 index?
The Nifty50 is an index made up of the top 50 companies in the Indian stock markets. These companies come from all parts of the economy. The index gives weight to these stocks based on how big they are in terms of their market value. This index stands for 54% of the total market value of all companies listed on the NSE.
2 – What is the Nifty total market index?
The Nifty total market index includes 750 stocks. It combines 500 stocks from the Nifty 500 index and 250 stocks from the Nifty microcap 250 index. This index covers over 92% of the total market value of all stocks. The index started in 2005.
3 – What is the difference between Sensex and Nifty 50?
The Bombay Stock Exchange has the Sensitive Index (Sensex) as its main index. Sensex has thirty companies that represent all parts of the economy. The National Stock Exchange has Nifty 50, which serves the same purpose but with 50 companies.
4 – Nifty 50 vs Nifty total market index Which is better?
To measure how the economy performs over time, you might find the Nifty total market index more useful. It has 750 companies, while Nifty50 has 50 companies. In terms of studying and analyzing the Indian economy, the Nifty total market cap can be preferred
5 – Is Nifty 50 more risky than Nifty total market index?
Looking at the fact sheets of both these indices as of October 31, 2024, we see some differences. Since it started, the Nifty50 has had a standard deviation of 22.87%. The Nifty total market has a standard deviation of 20.57%. But keep in mind that the Nifty 50 is nine years older. It has seen more ups and downs than the Nifty total market index. Various metrics must be studied before concluding which index is riskier.
