Over the last three decades, the Indian markets have gone through several bouts of volatility. Despite facing several challenges – global and domestic – the stock markets have continued their upward trajectory.
Even in the aftermath of the pandemic, the markets rebounded strongly , hitting an all-time-high in December last year. So, let’s take a look at the journey of the Nifty50 index, which is considered as the barometer or benchmark for the entire Indian markets.
By tracing the journey of the Nifty50, we can understand how the Indian markets have been a wealth creation machine over the last three decades.
What is the Nifty50 index?
When people say that the Indian markets have done well, or that they have gone up or down by 100 or 200 points, what do they mean?
This means that they are referring to the performance of the key benchmark index – the Nifty50. Constituted in 1995, the Nifty50 index comprises 50 stocks. Each stock or company has a weightage in the index. The index is a measure of the performance of these 50 stocks.
Currently, the Nifty50 index comprises 13 sectors ranging from technology and fast-moving consumer goods to banking and metal. Financial services, IT, and Oil & Gas hold 60% of the weightage in the index. The Nifty50 stocks also capture 66% of the NSE’s float-adjusted market capitalisation. This index is rebalanced semi-annually.
Currently, Reliance Industries, HDFC Bank, ICICI Bank, Infosys and Housing Development Finance Corporation are the top five stocks in terms of weightage in the Nifty50 index.
Now that we understand what the Nifty50 is, let’s take a look at how the Nifty50 index has performed over the last three decades.
Wealth creator
The Nifty50 index has seen some turbulent times like the dot-com bubble in the year 2000, the financial crisis in 2008 and the pandemic-triggered collapse in 2020. But, everytime it has managed to bounce back and deliver stellar returns.
Since its inception in 1995, this benchmark index has delivered a return of around 11% annually, on an average. Even if we look at the returns over the last 5 years, the Nifty50 companies have handsomely rewarded investors, delivering a return of 10.5%.
Tracking the Nifty50 index
If you also want to benefit from the rise of the Nifty50, then you can do so by investing in index funds that track the Nifty50 index. It is one of the most widely used indices for benchmarking the funds. Currently, there are more than 15 index funds that replicate the Nifty50 index.
These index funds invest money in the same companies and in the same proportions as the Nifty50.
There are several benefits of investing in a Nifty50 index. These funds are easy to invest in. You can invest through the SIP route (a fixed amount of money every month) with a minimum amount of ₹500. Also, the management fees for these funds are low or negligible as they are passive investment tools. This may boost your returns.
Moreover, index funds completely eliminate the issue of human bias. This is because a fund manager doesn’t actively pick stocks for these funds and simply aims to replicate the index.
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