The Indian stock market boasts a plethora of indices that track a handful of purely listed companies. Two of the highly tracked indices among them are Nifty 50 and Nifty 100. Both serve their purposes in marking the trends in the market and the buying or selling sentiments of the people, but they vary when it comes to structuring, composition, and function.

What is the Nifty 50?

The Nifty 50 defines a benchmark index on the National Stock Exchange (NSE) of India, containing nearly 50 of the largest and liquid companies on the exchange across various sectors such as banking, information technology, energy, pharmaceuticals, and consumer goods. The index reflects the performance of large-cap companies, and institutional and retail segments extensively use it.

Nifty 100: What is it?

An expanded version of the Nifty 50, the Nifty 100 includes the top 100 companies on the NSE. This index combines the Nifty and the Nifty Next 50, which includes free-float market capitalization rankings from 51 to 100. Similar to the Nifty 50, the Nifty 100 also serves as a free-float market capitalization-weighted index and rebalances semi-annually.

Composition and Coverage

One of the vital differences between Nifty 50 and Nifty 100 is that the two comprise different companies. Nifty 50 stocks include only the strongest companies, those with household revenues and market presence and high financial performance in both sales and profitability; essentially, a relatively stable measurement.

The Nifty 100, on the other hand, includes the same 50 companies along with the next 50 on the Nifty index, which are generally smaller in market capitalization compared to those on the Nifty 50. So, the Nifty 100 provides exposure in a mix of large-cap and upper mid-cap, which might shed light on the growth-oriented companies in their path to becoming market leaders.

Volatility and Risk

The Nifty 50 tends to be less volatile compared to the Nifty 100 due to its concentration on large, well-established firms. These firms generally diversify across revenue streams and maintain stable earnings, which could cushion them during tough times in the market. Thus, the Nifty 50 fits the risk appetite of conservative investors.

On the other hand, companies in the Nifty 100 might be in a growth phase and may exert more sway in the market. The side effect of this wider inclusion brings added volatilities but, at the same time, more opportunities for capital appreciation. This makes the index more attractive for investors with moderate to high risk appetites.

Sector Representation

Although both indices cover the whole gamut of sectors, the Nifty 100 tends to achieve more sectoral balance due to the presence of additional stocks. The Nifty 50 often includes a few dominant sectors like financial services and IT due to the size and clout of companies within those industries.

The additional 50 companies allow the Nifty 100 to cover more sectors or provide deeper representation within each sector. This can help reduce concentration risk and grant access to emerging industries that are slowly gaining traction in the market.

Use in Investment Products

Both Nifty 50 and Nifty 100 attract heavy tracking by mutual funds and ETFs. The Nifty 50 funds are generally categorized as large-cap funds aiming to deliver returns quite identical to the index. Investors often consider these funds a very core part of a long-term portfolio due to their stable and reliable nature.

On the contrary, Nifty 100 funds offer a mix of nutrition to large- and mid-cap investments. This attracts investors looking to diversify excellently beyond the top 50 companies while remaining in the relatively safe zone of time-tested companies. Nifty 100-based products fit well with investors seeking added diversification to their main portfolio of large caps.

Performance Over Time

Historical data often shows that the Nifty 100, during bullish phases, tends to deliver slightly better returns compared to the Nifty 50 due to greater exposure to mid-caps that outperform during such growth periods. In comparison, it may better protect against downsides during bear phases, with the Nifty 50 focusing much more on larger, stable companies.

The final consideration in deciding between the Nifty 50 and Nifty 100 comes from the investor’s financial goals, risk tolerance, and time horizon for investments. Investors rely on either index based on the pros and cons of holding each according to their strategies.

Conclusion

An investor’s equity investment decision-making hinges on the differences between the Nifty 50 and Nifty 100. While Nifty 50 represents a large-cap and low-volatility segment, Nifty 100 provides a higher degree of market representation and houses growth-oriented firms.