The NSE Nifty 50 touched a lifetime high of 11,581 on Tuesday, achieving a milestone that seemed unimaginable in 2002, when the broader 50-share indice hovered around the edge of 1,000. Nifty’s glory today has not come without its share of ups and downs, and it “has been a journey down numerous highways and byways,” according to a Motilal Oswal Securities report.
Over the years, the representation in Nifty-50 has undergone a sea change in consonance with the changes in the underlying economy – new sectors have evolved, while some have lost relative importance in the new India, the report adds.
Here’s how the NSE index has evolved from 1,000 to 11,500 levels:
Since its base period (November 1995), the Nifty has delivered a CAGR of 11 percent. However, its total market cap is up 56 times, implying a 19 percent CAGR. Notably, since December 2002, total market cap is up 24 times, implying a 23 percent CAGR. However, the Nifty has delivered a CAGR of 16 percent.
From the Nifty constituents of 2002, Mahindra & Mahindra is the best performing stock with a CAGR of 31 percent, while MTNL is the only stock to deliver negative returns.
Only 38 percent (19 stocks) of the Nifty constituents have consistently remained on the index since December 2002. Combined weight of these 19 stocks has declined to 61.4 percent from 73.1 percent around 16 years ago. Notably, 13 stocks that got listed over the period – Maruti (listed in July 2003), TCS (August 2004), UltraTech (August 2004), NTPC (November 2004), Yes Bank (July 2005), TechM (August 2006), Power Grid (October 2007), Adani Ports (November 2007), Bajaj Auto (May 2008), Bajaj Finserv (May 2008), Coal India (November 2010), Bharti Infra (December 2012) and Indiabulls Housing (July 2013) – are part of the index now.
Staying in the top-10 is not easy. Over the last 16 years, Reliance Industries (RIL) is the only stock to have maintained its position in the top-10 in Nifty-50. However, the stock's weight in the index has declined from 12.3 percent in December 2002 to 9.4 percent in August 2018.
Since 2004, the largest weighted Nifty stock of that year has failed to outperform the Nifty index over the subsequent five years.
There are 46 stocks outside the Nifty with market cap higher than the lowest-market-cap Nifty stock.
The weight of Financials has seen a secular rise in the benchmark indices. Private Financials now contribute 34.3 percent (over 5 times in 16 years) of Nifty 50. It can expand even further given that the index doesn't have any representation of Insurance yet.
Technology's weight (13.7 percent) is showing signs of revival after slipping to a five-year-low of 11.4 percent in 2017.
PSU's weight in the index is at all-time low of 9 percent. Motilal Oswal Securities sees very low possibility of new additions in that space.
Nifty Index future is most actively traded on the exchange. For CY18YTD, Nifty futures average daily turnover is at a seven-year high of Rs 124.9 billion. This can expand further as trading timing gets extended.
While the market soars to new highs, the Nifty trades at a forward P/E of 18.8 times, at a 21 percent premium to its own long-period average. Nifty P/B, which is at 2.8 times, is at an 8 percent premium to LAP. Notably, Nifty earnings growth over the 16 years is at 12 percent, as against market return of 16 percent.
First Published: Aug 22, 2018 9:15 AM IST