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Nifty50 turns 25! Here's how the index evolved over the years

Over the years, the sectoral representation of the Nifty has also changed tremendously and remains in consonance with the changes in the underlying economy.

23 April 2021

India's flagship equity index Nifty50 completed 25 years of its journey on April 22. The equity barometer came into existence on April 22, 1996, and since then has seen many changes in its components, indicating the changing business-economic dynamics of the country.

Nifty has come a long way after it was launched in April 1996, when it traded at 1,107, with the base year of November 1995 set as 1,000.

For the first time in history, Nifty closed above the psychological mark of 15,000 on February 8, 2021.

Nifty50 is a benchmark equity index and it shows the weighted average of India's top 50 companies, across sectors, that are listed on NSE.

With time, many components of the index exit the group while the new ones enter.

Over the years, the sectoral representation of the Nifty has also changed tremendously and remains in consonance with the changes in the underlying economy.

"With a change in the economy from manufacturing to services over the past three decades and the rise of the private sector, the sectoral representation in 2021 is vastly different from that of 1996," said brokerage firm Motilal Oswal.

Of the 50 stocks in the Nifty, 13 companies – HDFC Bank, RIL, HDFC, ITC, HUL, L&T, SBI, Tata Motors, Dr Reddy’s Labs, Tata Steel, Grasim, Hero, and Hindalco – have been a part of the index’s journey since inception.

The combined market cap of these 13 companies has grown at a CAGR of 18 percent between April 1996 and February 2021, said the brokerage firm, said a report from brokerage firm Motilal Oswal Financial Services.

The average P/E multiple of the Nifty between April 1996 and February 2021 stands at 15.7 times; however, the average for the last 10 years is 18.8 times, said the brokerage firm.

Motilal Oswal highlighted while traversing its journey from 1,107 to 15,000, the Nifty (up about 14 times) has delivered 11.1 percent CAGR returns in the last 25 years.

Binod Modi, Head Strategy at Reliance Securities said the journey of 25 years for Nifty has been fantastic as 11 percent CAGR return of Nifty, by and large, has outpaced the return of all asset classes in the country.

"While the Indian economy has grown manifold during the period with real GDP recording over 8 percent CAGR during the period, Nifty constituent companies like RIL, TCS, Infosys, HDFC Bank delivered astounding returns to shareholders," said Modi.

"Notably, gold has traditionally been a preferred asset class for the Indian population for so many decades, Nifty return of 11 percent CAGR has also surpassed gold return of over 9 percent CAGR during the period," he said.

Rusmik Oza, Executive-VP and Head of Fundamental Research, Kotak Securities underscored that the wider number of stocks in the Nifty50 gives proper diversification and representation to various sectors.

The double-digit compounding returns of Nifty50 over the last 25 years reflect the underlying growth potential of India across various sectors.

"Unlike BSE Sensex, the Nifty50 looks more relevant on an ongoing basis. The six-monthly reshuffling exercise of Nifty50 helps in removing the weaker and outdated companies and replacing it with relevant higher market cap companies," Oza said.

Ashis Biswas, Head of Technical Research at CapitalVia Global Research underscored the Nifty50 constituents account for approximately 58 percent of India's overall market capitalization.

"From the moment it was launched, the Nifty has replicated its economic development on its incredible ride.

In the Indian context, the biggest development recently that has long-term impact was the Union Budget in the first week of February," Biswas said.

The government pegged the fiscal deficit for the financial year 2020-21 at 9.5 percent of GDP and set the target for 2021-22 at 6.8 percent of GDP. These were much higher than the market expectations. The fiscal consolidation roadmap also got extended to lower the fiscal deficit to 4.5 percent only by the fiscal year 2025-26, Biswas pointed out.

"For the long-term, we remain bullish on Nifty50 index performance, but profit-taking is likely from 14,200-14,500 levels, and near-term uncertainty cannot be ruled out. Any drop to about 13,800 will be a decent time to start building a long-term investment portfolio," he said.

On April 22, 2021, the index closed 110 points, or 0.77 percent, higher at 14,406.15.

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