The two indices BSE & NSE represent the condition of the Indian stock market and are the prime movers of market sentiments. Their up and down movement depends upon the stock movements of the BSE 30 and NIFTY 50 companies so the benchmark index represents the weighted average of 30 and 50 of the largest companies listed on the BSE & NSE.
However, most of the investors these days are unable to find any relationship between the Indices and their portfolio. The reason being the Indexes have around 40% concentration of weightage to financial services, about 16% to Energy, 13% to IT and the same percentage to consumer goods leaving only about 18% to other sectors.
Let us take the Nifty50 list. Reliance Industries Ltd. has the highest having 14.90% weightage in Nifty 50 list, whereas HDFC Bank remains at a second-place having 9.67% weightage & Infosys is on the third spot having 7.62% in Nifty 50 Companies list 2020 based on closing prices of September 2020.
After Reliance Industries, if we do a little more calculation, we find the top 2 companies constitute 24.57%, the top 3 constitute 32.19% and the top 5 companies constitute a total of 44.02 %. It means almost half of the total weightage is centred on the top 5 companies. Another surprise is – Reliance’s weightage is higher than the bottom 23 names put together.
Technically it may be sound but ironically on the practical platform, it sounds bizarre and utter nonsense.
It only proves the point why even when the Index is touching new highs most of the investor’s portfolios are in negatives.
We suggest investors to concentrate on the good companies, companies which have a financially sound balance sheet, with clean promoters rather than following the dictates of the Indexes.
The index was in fact never a barometer of the economy and your portfolio. Come out of this myth.
List of stocks in Nifty as per weightage (on 1st Oct 2020)
- Reliance Industries – 14.90%
- HDFC Bank – 9.67%
- Infosys – 7.62%
- HDFC Ltd. – 6.43%
- TCS – 5.40%
- ICICI Bank – 5.05%
- Kotak Mahindra Bank – 3.83%
- Hindustan Unilever – 3.81%
- ITC – 3.09%
- Larsen & Toubro – 2.27%
- AXIS Bank – 2.17%
- Bharti Airtel – 2.08%
- Maruti Suzuki India – 1.85%
- Asian Paints – 1.85%
- HCL Technologies – 1.82%
- Bajaj Finance – 1.79%
- State Bank of India – 1.47%
- Dr. Reddy’s Lab – 1.30%
- Mahindra & Mahindra – 1.20%
- Nestle India – 1.17%
- Sun Pharma – 1.11%
- Titan Company – 1.03%
- Tech Mahindra – 1.01%
- UltraTech Cement – 0.96%
- Wipro – 0.96%
- Britannia Industries – 0.92%
- HDFC Life Ins – 0.91%
- Power Grid Corp – 0.86%
- NTPC – 0.85%
- Hero MotoCorp – 0.84%
- Cipla – 0.81%
- Divi’s Lab – 0.80%
- Bajaj Auto – 0.77%
- Bajaj Finserv – 0.73%
- SBI Life Insurance – 0.65%
- Eicher Motors – 0.63%
- IndusInd Bank – 0.62%
- Grasim Industries – 0.61%
- Bharat Petroleum – 0.58%
- UPL – 0.57%
- JSW Steel – 0.57%
- Shree Cement – 0.56%
- Tata Steel – 0.56%
- Hindalco – 0.53%
- ONGC – 0.52%
- Adani Port & SEZ – 0.52%
- Coal India – 0.50%
- Tata Motors – 0.49%
- Indian Oil Corp – 0.43%
- GAIL (India) – 0.33%
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