What is the Nifty Next 50 Index: Constituent Stocks, Sectors, and Returns

The Nifty Next 50 is an index that consists of 50 largecap NSE-listed stocks ranked lower than the 50 largest listed stocks based on float market capitalization. So, the stocks featured on this diversified index are ranked between 51^st and 100^th in terms of free-float market cap, while being part of the larger parent index, Nifty 100 Index. Additionally, the 50 stocks that are part of the Nifty 50 Index are not part of the Nifty Next 50 Index.

Some of the major sectors in the Nifty Next 50 index include the financial services sector, which covers around 20.12% [1] weight of the Nifty Next 50 index. The Fast Moving Consumer Goods (FMCG) and metals and mining sectors also account for around 12.93% and 11.10% of the Nifty Next 50 index, respectively. Other sectors besides consumer goods include banking, pharmaceuticals, etc. This index undergoes rebalancing twice a year (September and March). This rebalancing process is conducted depending on the largest market capitalization data.

This particular index is designed to note the growth capacity of India’s emerging companies. The companies that have the capability to become leaders in the coming days. The companies/ sectors in the Nifty 50 index are among India’s largest companies so are not easily impacted by economic cycles, regulatory changes, etc. However, being an equity investment, investors must have a high-risk appetite with a long-term investment horizon when investing in the Nifty Next 50 stocks.

Individuals who intend to make an investment in a mutual fund, which tracks the Nifty Next 50 index, can opt for passive investments like exchange traded funds (ETFs) or Index Funds.

The 50 stocks featured in the Nifty Next 50 index represent a large number of sectors, so investments that track this index will have a diversified portfolio. The top 10 sectors which are represented in the Nifty Next 50 Index include:

Additionally, one should keep

in mind that all 50 companies featured on the index are not equally important and that’s the reason why each constituent stock is assigned a different weight on the Next 50 Index. Below is a list of the stocks that have the highest weight on the Nifty Next 50 Index:

So, any ETF or Index Fund that tracks the Nifty Next 50 Index will have the same exposure to different sectors and large-cap company stocks as shown in the tables above. While these are passive investment options, these will have features similar to large-cap mutual funds.

Investors can make the most of the compelling advantages if they invest in the Nifty Next 50 Index via passive investment options like an exchange traded fund or an Index Fund. Below are some key benefits of these investment plans:

The most notable difference between Nifty Next 50 and Nifty 50 is the liquidity and size of the companies which these indexes comprise. Large-cap companies are there in the Nifty 50, these companies have highest free-float market capitalization. Besides, these are well-established and largely traded. On the other hand, Nifty Next 50 features the relatively smaller large-cap companies. These companies have lower market capitalization as compared to the Nifty 50 stocks hence they have a higher growth potential in comparison.

Due to larger size of constituent companies, the Nifty 50 index is less volatile and more stable than the Nifty Next 50 counterpart. However, investors cannot expect the same high growth potential as compared to the Nifty Next 50 Index stocks.

Secondly, there is a difference between the concentration and sectorial composition of Nifty Next 50 and Nifty 50. A few sectors, like information technology, financial services, energy, consumer goods, etc., dominate the Nifty 50 index. On the contrary, the sectorial distribution for Nifty Next 50 is more balanced and it contains stocks from sectors like utilities and materials, healthcare and industrials, etc. that are not available if one is exclusively investing in the Nifty 50 Index.

In addition, you will get to see higher concentrations of companies like HDFC bank, TCS, reliance industries, etc., in Nifty 50. All these 4-5 large company stocks combine to form approximately 40% of the overall index weightage. However, you will not find an equally concentration of the top 4-5 companies in the NiIfty Next 50 as their combined weight is approximately 20%. So, the concentration risk with respect to individual stocks is lower in the case of the Next 50 Index.

Investors who intend to invest in India's equity market via ETFs or mutual funds should know these key differences between Nifty Next 50 and Nifty 50. Before investing in any of the indexes or both the indexes, investors must consider the Nifty Next 50 return expectations, diversification requirements, risk appetite, and the horizons of the investment. One with a higher risk can go for Nifty Next 50, whereas those who prefer lower risks and stability must go for Nifty 50. Nifty Next 50 and the Nifty 50 together form the larger Nifty 100 which represent the 100 largest listed company stocks on the NSE.

Below are the historical 1 year, 5 year and since inception returns of the Next 50 Index as of 31^st August 2023:

As you can see, the returns of the Next 50 Index are significant lower than small cap indices like the Nifty Smallcap 250 Quality 50 Index for comparable time periods.