The index voyaged from 1,000 to 20,000 in little under 28 years. To reach 10,000 it took little less than 22 years, but the next 10,000 was achieved in nearly six years. Amidst all the positivity, let us look at some of the internals.
The journey to the milestone is that of the index and not of a given set of 50 equity stocks.From inception in November 1995, there are 12 stocks that have made the cut till this day. One of them is Reliance Industries. There are four financials —State Bank of India, HDFC Bank, ICICI Bank and HDFC Ltd till the merger in July 2023. Hindustan Unilever and ITC are the two companies holding the FMCG flag till today. Then there are Tata Steel, Hindalco, Tata Motors, Bajaj Auto and L&T.
What does the index represent? It represents 63% of the aggregate free-float market capitalisation of India and 52.4% of aggregate full market capitalisation. In terms of sectors, the highest weightage is that of financial services. The weightage of financial services has increased from 20% at inception to 38% today.
The next highest representation is that of information technology. This sector has seen ups and downs in terms of weightage in the index. From nil at inception, IT went up to 20% in 2005, and is now down to 13%. Oil and gas, at 12%, has reasonable representation in the index. This sector also saw an upside from 1995 to 2005. FMCG, remarkably, has eased in terms of weightage. From 19% in 1995, the sector is now at 10%.
In the journey from 10k to 20k, the contribution of the sectors have been somewhat commensurate with the weightages discussed here. Out of those 10,000 points, the financial services sector contributed 3,400 points, i.e., 34%. IT contributed 1,882 points or 19%. Then we have oil and gas contributing 15% and FMCG 7%.
Takeaway for investors
The takeaway for investors is the outcome of various holding periods, computed on a daily rolling return basis. The analysis is done from June 30, 1999 to September 11, 2023, based on total returns, i.e. price and dividend.
The outcome is, 75.4% of the times, returns have been positive and 24.5% of the times it was negative. Of the positive return incidences, 44% of the times, return was more than 15%. The average compound annualized growth rate (CAGR) of the rolling 1-year periods is 16.2%.
The longer your holding period, going by the long history, you stand a higher chance of going home with positive returns. On 7-year and 10-year holding periods, it is an impeccable 100% positive returns record. Not only that, in the 7-year and 10-year holding periods, the outcomes are always more than 5% CAGR. The average 10-year CAGR is 14.2%.
Index funds and ETFs based on Nifty50 will rebalance every six months, depending on the changes in the index. Your exposure to index funds and ETFs will enable you commensurate returns, net of expenses and tracking error.
The writer is a corporate trainer and an author