India is the big emerging economy of the 21st century and perhaps one of the best investment opportunities of our lifetime. We analyze the most important stock market indices in India.
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Introduction
India is the second most populous country in the world and the sixth largest economy. At the same time, all projections place India as number one country in the world, both demographically and economically, by the end of the 21st century.
For those interested in the reasons for investing in India, I would recommend the following post where I made a detailed analysis of why we should be bullish:
Why We Should Invest in India – Top 7 Reasons
For anyone who wants to invest in India, knowing its stock market indices is essential. Because India is a relatively opaque and unfamiliar market, selecting individual companies can be more complicated than in other countries.
Therefore, it is worth considering investing in India passively through an ETF. Next, we analyze the 7 most important stock market indices in India:
NIFTY 50
The NIFTY 50 is one of the two most famous stock indices in India, the other being the BSE SENSEX, which we will analyze later.
Introduced in 1997, the NIFTY 50 is made up of the 50 companies with the largest market capitalization on the National Stock Exchange (NSE) of India, one of the two main stock exchanges in the country. This exchange is located in Mumbai is owned by the Indian government.
The index is owned and published by the company NSE Indices, a subsidiary of the National Stock Exchange.
Within the index, companies are weighted according to their market capitalization adjusted for free float, so the largest ones tend to be more represented. However, if a substantial portion of a company is owned by insiders, such as governments or founders, its weight will be adjusted down.
Because the NIFTY 50 only has 50 companies, it allows us to focus on those with the largest market capitalization. Approximately two-thirds of India’s total market capitalization is represented by the index.
If you want to find additional information about this index, you can visit the link to the NSE Indices website.
NIFTY 100
The NIFTY 100 is another index published by NSE Indices and of very similar construction.
In this case, we have the top 100 companies in the country. Consequently, the NIFTY 100 index makes it possible for us to invest in mid-cap companies. Thanks to that, it offers a little more diversification. Approximately 75% of India’s market capitalization is captured by the NIFTY 100.
Because stocks within the index are weighted by their free float-adjusted market capitalization, it is dominated by the largest companies, and the correlation between the NIFTY 50 and the NIFTY 100 is very high.
You will find additional details on the NSE website.
NIFTY 500
Finally, NSE Indices offers us an additional index that allows us to invest in practically the entire Indian stock market, with the NIFTY 500 being composed of its 500 most important companies.
These represent approximately 97% of the country’s market capitalization. Most of the companies within the index are indeed small-cap stocks.
In this sense, the NIFTY 500 can be considered the Indian equivalent to the famous US stock market index S&P 500.
If you are interested in more information about the NIFTY 500, you can visit this link.
S&P BSE SENSEX
The S&P BSE Sensex is India’s other major stock market index, along with the NIFTY 50. Published by the US company S&P Dow Jones Indices, hence its name, the S&P BSE SENSEX is composed of the 30 most important companies listed on the Mumbai Stock Exchange (BSE).
This index was introduced in 1986, originally under the name BSE SENSEX.
It should be noted that this index only considers shares listed on the BSE stock exchange, which is the other main stock exchange in India, also located in Mumbai. Unlike the NSE, the BSE is owned by private investors.
Because it has 30 companies, the S&P BSE SENSEX is more concentrated in large-cap stocks.
S&P BSE SENSEX 50
Another index published by S&P is the S&P BSE SENSEX 50, made up of the top 50 companies on the BSE exchange.
Because companies in both the S&P BSE SENSEX and S&P BSE SENSEX 50 are weighted according to their market capitalization adjusted for free float in both indices, the correlation between them is very high.
The BSE SENSEX 50 can be considered the equivalent to the NIFTY 50 from an index composition perspective, in that it has the same number of shares, and there is plenty of overlap.
For additional details, check out the BSE website.
S&P BSE 500
The third index of the ones published by S&P is also the most diversified since it has a total of 500 stocks.
As with the NIFTY 500, we could consider the S&P BSE 500 to be the Indian equivalent to the S&P 500. It is a great choice for those investors who want to be exposed to Indian companies of all sizes and in all sectors.
Nevertheless, we should mention that the correlation between the S&P BSE 500 and the rest of the indices discussed so far is quite high. For additional information, here is the link to the official website.
MSCI India
The MSCI India is a stock market index published by the US company MSCI and one of the most popular for passive investors.
This index includes all Indian companies that are part of the MSCI Emerging Markets World Index of emerging countries. Indian stocks account for approximately 10% of the total market capitalization of emerging markets.
In the case of the MSCI India, the number of stocks within the index varies over time depending on how many companies meet the eligibility criteria. By early 2023, it has just over 100 members.
MSCI India’s two largest companies are Reliance Industries and Infosys.
For those who want to know this index in more detail, here is the link to the official website of MSCI.
I hope you found this review of India’s top stock market indices useful and encourage you to subscribe to my newsletter:
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And if you want to learn about the indices of another emerging country, check out the following link:
Top 4 Stock Market Indices in Poland
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