A Comprehensive Investor Guide about NIFTY Next 50 Index

The NIFTY Next 50 Index represents 50 of India’s biggest companies beyond companies that are part of NIFTY 50. The NIFTY Next 50 companies represent 12-13% of NSE’s total market capitalization. Over the years, the index has gained much in popularity including creation of mutual funds on top of it. In this article, we look at what constitutes the Nifty 50 Index, its performance and how to invest in it.

What is the NIFTY Next 50 Index?

Unlike common parlance, the NIFTY Next 50 does not comprise companies ranked between 51 to 100 per market capitalization. Simply put, NIFTY Next 50 Index represents the balance 50 companies from NIFTY 100 after excluding the NIFTY 50 companies.

Let’s examine this in greater details

NIFTY 100 comprises of the top 100 companies based on full market capitalisation from the NIFTY 500 universe. On the other hand, the NIFTY 50 represents fifty companies selected from the NIFTY 100 Index based on free-float market capitalization. The balance between NIFTY 100 and NIFTY 50 is what comprises of NIFTY Next 50 Index

The key distinction between NIFTY 100 and NIFTY 50 is the use of full market capitalization versus free-float market capitalization.

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List of Companies in NIFTY Next 50 Index

The table below gives the list of fifty companies that this index with the market capitalization of each company

These 50 companies total 22,25,7494 crores of market capitalization (as of 19-Jan-2020). This is about 13% of the total market capitalization of companies listed in the National Stock Exchange.

HDFC Life Insurance Co. Ltd. and Avenue Supermarts Limited are the companies with the highest market capitalization that are part of the NIFTY Next 50 Index.

Sectoral Distribution

A prime advantage of investing in the NIFTY Next 50 Index is diversification. In this index, investors get access to a diversified set of companies which is very different from NIFTY 50.

To put that into perspective –

• The NIFTY 50 companies donot consist of a single insurance company. NIFTY Next 50 has six insurance companies. These are SBI Life Insurance, New India Assurance, ICICI Prudential Life Insurance, ICICI Lombard General Insurance, HDFC Life Insurance and General Insurance Corporation. The insurance sector contributes almost 18% of the NIFTY Next 50 Index
• Energy has a large portion of NIFTY 50 with almost 15% weight. This is largely due to Reliance Industries. However NIFTY Next 50 has just 5% weight to energy companies
• We see a similar diversion with technology companies. NIFTY 50 has a 13% weight with the two behemoths in Infosys and Tata Consultancy Services (TCS). However NIFTY Next 50 has only 1% weight in its index from technology

Overall a combination of NIFTY 50 and NIFTY Next 50 gives you a wonderful spread of Indian companies.

Performance of NIFTY Next 50 companies

We mapped the performance of all fifty companies in the NIFTY Next 50 Index in terms of –

• One year stock performance
• % Away from 52 week low
• Return on Equity (ROE)
• Return on Capital Employed (ROCE)
• Price Earning Ratio (PE Ratio)
• Enterprise Value / EBITDA

These six variables help us understand the kind of companies that generally make it to the Next 50 index. It will also assist you in identifying stocks for investing in. 

Comparison between NIFTY and Next 50

We extend our comparison of the NIFTY 50 and the NIFTY Next 50 index. We do this by looking at six essential variables which include market capitalization, return on equity, price earning ratio etc. to see how both these indices have been performing on different parameters.

For more information on all NIFTY indices, do read my previous article on the subject titled A Complete Investor Guide to Nifty50, Bank Nifty & 65 Other Indices

The table above clearly shows that the NIFTY Next 50 is more expensive to purchase in the current market environment. It has a high PE ratio and a high EV/EBITDA ratio.

This can also be a function of the kind of companies in this index. The presence of consumer goods and insurance companies does push up the valuations. The NIFTY 50 has a lot more banks, technology and energy companies.

Performance of the Index

Many investors are buying into Nifty Next 50 Index mutual funds.

As of December 2019, the AUM of Next 50 Index funds was over ₹2,300 crores. The schemes from ICICI Prudential Mutual Fund, SBI Mutual Fund and UTI Mutual Fund have the lion’s share.

Let’s look at how these funds have performed (data as of January 20, 2020)

The NIFTY Next 50 Index funds and ETFs have delivered a little over 10% annual returns over the last 10 years. This is a lot similar to how the NIFTY 50 Index has performed over the same time period. 

A few readers of the blog have asked me on whether it makes sense to invest via ETFs rather than purchasing mutual fund units.

In truth, index mutual funds and ETFs (exchange traded funds) have a lot (and a lot more) in common. They constitute the same stocks that are part of the index that they represent. This means one can expect similar performance from the instrument. The key difference is that ETFs can be traded like stocks i.e. buy and sell when you please. On the other hand, mutual fund NAV (net asset value) is declared only once a day.

In my opinion, long term equity investors should not bother with this difference. They should continue to purchase on whichever mode they are comfortable with.

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How to Invest in NIFTY Next 50 companies?

You can invest in the NIFTY Next 50 Index using the ETF (Exchange Traded Funds) or Mutual Fund route.

Investing via Index Mutual Funds

If you invest using the mutual fund route, then investing in a NIFTY Next 50 Index is as simple as – 

a) Download an investment app like ETMONEY, Groww or PayTM Money

b) Complete your KYC (this is done via video and is 100% paperless)

c) Pick the index of your choice and make the payment towards the money you want to invest

The following mutual fund index schemes are available for buying into NIFTY Next 50 Index –

• DSP Nifty Next 50 Index Fund – Direct – Growth
• ICICI Prudential Nifty Next 50 Index Fund – Direct Plan – Growth
• Motilal Oswal Nifty Next 50 Index Fund (MOFNEXT50) – Direct Plan – Growth
• UTI Nifty Next 50 Index Fund – Direct Plan – Growth

I have listed only direct plans. It is always advisable for you to purchase the direct plans of mutual funds as it comes with broker commissions which can be as high as 0.75%.

Since you are buying an index fund (and not an active fund), the question of advisor’s value-add in the fund selection process mostly does not come in. However, you should certainly compensate your advisor if he/she helps you with additional support in the form of portfolio management, rebalancing, asset allocation, tax harvesting etc.

Of the above mutual funds, the ICICI Prudential Nifty Next 50 Index Fund – Direct Plan and the UTI Nifty Next 50 Index Fund – Direct Plan hold the highest AUM of over ₹500 crores each.

Investing via ETF

You can also invest via the ETF route. It is a little more complicated because you need a demat account. A demat account can be procured from a broker like Zerodha, ICICI Direct, HDFC Securities etc. to invest through. If you already have a demat account or have procured one then buying the NIFTY Next 50 ETF is as simple as purchasing a stock from your online trading account.

The following Next 50 Index schemes are available for buying via the ETF mode –

• Aditya Birla Sun Life Nifty Next 50 ETF
• ICICI Prudential Nifty Next 50 ETF
• Nippon India ETF Sensex Next 50
• Reliance ETF Sensex Next 50
• SBI – ETF Nifty Next 50
• SBI – ETF SENSEX NEXT 50
• UTI Nifty Next 50 Exchange Traded Fund
• UTI S&P BSE Sensex Next 50 ETF

Among ETFs, SBI – ETF Nifty NEXT 50 and UTI Nifty Next 50 Exchange Traded Fund are the more popular ones. These have been in existence for a few years now.

In the ETF space, there are a few SENSEX Next 50 possibilities for investors. As the name suggests, this index constitutes 50 of the largest and most liquid companies listed on the BSE. These are companies within the S&P BSE LargeMidCap Index which are outside the BSE Sensex. While this is not the exact definition but a simple way of describing is that the companies which are ranked between 31 to 80 in the Bombay Stock Exchange

Additional Resources You Might Like

Here are some articles you might like:

• Rakesh Jhunjhunwala and his secrets to investing (Part 1)
• Complete SIP Investment Guide (over 8000 words compedium updated until 2020)
• The trillion dollar index fund story that John Bogle started in the 1970s
• Best SIP for achieving long term goals
• 5 steps on choosing the right term insurance plan for yourself