Over the years, the Indian stock markets have become the go to destination for the global investors who are always looking for superlative returns from their investments. Led by the regulator Securities and Exchange Board of India (SEBI), the stock exchanges, clearing corporations, depositories and stock brokers in the country have been bringing in new innovations that are defining the way stock exchanges function around the world.
The question that naturally comes to everyone’s mind is that what do these investors look at when they try to evaluate the performance of the Indian stock markets? The answer is the Stock market indices.
The Nifty50 and Bank Nifty indices are the two most popular indices of the National Stock Exchange of India (NSE). In this article we will try to understand what these two indices represent and what are the differences between them. It is crucial for anyone who is wanting to invest in the Indian markets to understand this and get their concepts clear.
Nifty50
The Nifty50 is the flagship broad market index of NSE. As the name suggests it comprises of 50 of the largest and most traded companies that are listed in the exchange. These 50 stocks cover 13 prominent sectors of the Indian economy. Since it is a broad market index, the performance of Nifty is the performance of the entire stock market of India.
These are the constituents of Nifty as of January 2023:
| SL | Company Name | <Industry | Symbol |
| 1 | Adani Enterprises Ltd. | Metals & Mining | ADANIENT |
| 2 | Adani Ports and Special Economic Zone Ltd. | Services | ADANIPORTS |
| 3 | Apollo Hospitals Enterprise Ltd. | Healthcare | APOLLOHOSP |
| 4 | Asian Paints Ltd. | Consumer Durables | ASIANPAINT |
| 5 | Axis Bank Ltd. | Financial Services | AXISBANK |
| 6 | Bajaj Auto Ltd. | Automobile and Auto Components | BAJAJ-AUTO |
| 7 | Bajaj Finance Ltd. | Financial Services | BAJFINANCE |
| 8 | Bajaj Finserv Ltd. | Financial Services | BAJAJFINSV |
| 9 | Bharat Petroleum Corporation Ltd. | Oil Gas & Consumable Fuels | BPCL |
| 10 | Bharti Airtel Ltd. | Telecommunication | BHARTIARTL |
| 11 | Britannia Industries Ltd. | Fast Moving Consumer Goods | BRITANNIA |
| 12 | Cipla Ltd. | Healthcare | CIPLA |
| 13 | Coal India Ltd. | Oil Gas & Consumable Fuels | COALINDIA |
| 14 | Divi’s Laboratories Ltd. | Healthcare | DIVISLAB |
| 15 | Dr. Reddy’s Laboratories Ltd. | Healthcare | DRREDDY |
| 16 | Eicher Motors Ltd. | Automobile and Auto Components | EICHERMOT |
| 17 | Grasim Industries Ltd. | Construction Materials | GRASIM |
| 18 | HCL Technologies Ltd. | Information Technology | HCLTECH |
| 19 | HDFC Bank Ltd. | Financial Services | HDFCBANK |
| 20 | HDFC Life Insurance Company Ltd. | Financial Services | HDFCLIFE |
| 21 | Hero MotoCorp Ltd. | Automobile and Auto Components | HEROMOTOCO |
| 22 | Hindalco Industries Ltd. | Metals & Mining | HINDALCO |
| 23 | Hindustan Unilever Ltd. | Fast Moving Consumer Goods | HINDUNILVR |
| 24 | Housing Development Finance Corporation Ltd. | Financial Services | HDFC |
| 25 | ICICI Bank Ltd. | Financial Services | ICICIBANK |
| 26 | ITC Ltd. | Fast Moving Consumer Goods | ITC |
| 27 | Indusind Bank Ltd. | Financial Services | INDUSINDBK |
| 28 | Infosys Ltd. | Information Technology | INFY |
| 29 | JSW Steel Ltd. | Metals & Mining | JSWSTEEL |
| 30 | Kotak Mahindra Bank Ltd. | Financial Services | KOTAKBANK |
| 31 | Larsen & Toubro Ltd. | Construction | LT |
| 32 | Mahindra & Mahindra Ltd. | Automobile and Auto Components | M&M |
| 33 | Maruti Suzuki India Ltd. | Automobile and Auto Components | MARUTI |
| 34 | NTPC Ltd. | Power | NTPC |
| 35 | Nestle India Ltd. | Fast Moving Consumer Goods | NESTLEIND |
| 36 | Oil & Natural Gas Corporation Ltd. | Oil Gas & Consumable Fuels | ONGC |
| 37 | Power Grid Corporation of India Ltd. | Power | POWERGRID |
| 38 | Reliance Industries Ltd. | Oil Gas & Consumable Fuels | RELIANCE |
| 39 | SBI Life Insurance Company Ltd. | Financial Services | SBILIFE |
| 40 | State Bank of India | Financial Services | SBIN |
| 41 | Sun Pharmaceutical Industries Ltd. | Healthcare | SUNPHARMA |
| 42 | Tata Consultancy Services Ltd. | Information Technology | TCS |
| 43 | Tata Consumer Products Ltd. | Fast Moving Consumer Goods | TATACONSUM |
| 44 | Tata Motors Ltd. | Automobile and Auto Components | TATAMOTORS |
| 45 | Tata Steel Ltd. | Metals & Mining | TATASTEEL |
| 46 | Tech Mahindra Ltd. | Information Technology | TECHM |
| 47 | Titan Company Ltd. | Consumer Durables | TITAN |
| 48 | UPL Ltd. | Chemicals | UPL |
| 49 | Ultratech Cement Ltd. | Construction Materials | ULTRACEMCO |
| 50 | Wipro Ltd. | Information Technology | WIPRO |
As you can see this list contains the names of some of the most well-known companies of India. The index is calculated using the free float methodology. The index accounts for 62% of the free float market capitalization of NSE as of January 2023.
It is interesting to know that the Nifty50 index is not only used for gazing the performance of the Indian stock markets. It is also used for a variety of other purposes like constructing index funds, benchmarking of fund performances and for derivatives trading.
What is Bank Nifty?
The Bank Nifty, formally known as the Nifty Bank index, is a specialised index that tracks the performance of the banking sector in India. It comprises of 12 of the most liquid banking stocks that are traded on NSE. It has representation of from the public sector, private sector, and foreign banks.
These are the constituents of Bank Nifty years of January 2023:
| Sl | Company Name | Industry | Symbol |
| 1 | AU Small Finance Bank Ltd. | Financial Services | AUBANK |
| 2 | Axis Bank Ltd. | Financial Services | AXISBANK |
| 3 | Bandhan Bank Ltd. | Financial Services | BANDHANBNK |
| 4 | Bank of Baroda | Financial Services | BANKBARODA |
| 5 | Federal Bank Ltd. | Financial Services | FEDERALBNK |
| 6 | HDFC Bank Ltd. | Financial Services | HDFCBANK |
| 7 | ICICI Bank Ltd. | Financial Services | ICICIBANK |
| 8 | IDFC First Bank Ltd. | Financial Services | IDFCFIRSTB |
| 9 | Indusind Bank Ltd. | Financial Services | INDUSINDBK |
| 10 | Kotak Mahindra Bank Ltd. | Financial Services | KOTAKBANK |
| 11 | Punjab National Bank | Financial Services | PNB |
| 12 | State Bank of India | Financial Services | SBIN |
The Bank Nifty is also calculated using the free float market capitalization methodology. It serves there is one of the most important indicators for any investor who wants to track the banking sector of India and it is also used for derivatives trading.
Differences Between Nifty and Bank Nifty
Diversity of Components:
As mentioned earlier Bank Nifty is a specialised index that measures the performance of only the banking sector of India. On the other hand, the Nifty50 represents 13 sectors including IT, banking, pharma, telecom, energy, etc. Those investors who are looking for diversifying their portfolio should invest in the Nifty50 index since it reduces the risk of investing in a single sector.
Market capitalization:
In terms of market capitalization, the Nifty50 is much larger than the Bank Nifty, since it is a broad market index comprising of 50 stocks as compared to 12 stocks in the Bank Nifty.
As of 31st January 2023, the market capitalization of Nifty50 is Rs 14,041,150.99 Cr and that of Bank Nifty is 2,931,118.66 Cr. The Nifty50 also has better liquidity than the Bank Nifty making it suitable for the investors to trade the index.
Volatility:
Being a broad market in the excise duty is less susceptible to ups and downs of a single index. Hence it is less volatile than Bank Nifty which is a sector specific index.
So, if you are wanting stable returns without taking a lot of risk then Nifty50 is going to be perfect for you. However, if you are looking for higher returns and are willing to take higher risks than the Bank Nifty will be the index you must choose.
Returns:
Since these are two completely different indices it is difficult to compare the returns of the two. Over the long term the Nifty50 has generated more returns compared to Bank Nifty. However, the Bank Nifty is known to have provided the trader with could short term returns since its volatility is higher.
As market indicators:
As mentioned earlier the Nifty50 represents 13 sectors of the Indian economy. Hence it is widely used by investors who want to get an overall view of the Indian stock markets and the Indian economy. The Bank Nifty on the other hand will give you a specialised view on the banking sector only.
In conclusion it can be said that both the Bank Nifty and Nifty50 are extremely important indices of the Indian stock markets. Anyone who is interested in investing in India needs to look at both. Both have their specific uses and unique risk return profiles. If you are interested in knowing how you can benefit from the movement of these indices get in touch with us.
Happy Investing!
This article is for education purpose only. Kindly consult with your financial advisor before doing any kind of investment.