Investors should consider the Nifty Next 50 exchange traded funds (ETFs) as a low-cost and efficient way to enhance large-cap exposure. Unlike the Nifty 50—which is heavily concentrated in a few mega-cap names—the Nifty Next 50 offers a broader mix of high-potential companies that are likely to become future blue-chip stocks.
While Nifty 50 covers companies ranked 1–50, Nifty Next 50 covers companies ranked 51–100. Together, they give full exposure of large caps to investors. “It will complement the large-cap allocation by adding growth-oriented stocks in a stable, low-cost structure of passive investing,” says Nehal Mota, co-founder & CEO, Finnovate, a wealth management firm.
Diversification tool
Nifty Next 50 ETFs can be a highly effective complement to a Nifty 50–based portfolio. The Nifty Next 50 is a strong diversifier for long-term index investors.
Nirav Karkera, head, Research, Fisdom, says many current Nifty 50 companies have historically graduated from the Nifty Next 50, allowing investors to gain early exposure to future mega-cap leaders. “This blend of stability from the Nifty 50 and growth potential from the Nifty Next 50 makes the combination a powerful long-term indexing strategy,” he says.
Nifty Next 50 covers leaders across industries – like the largest API manufacturer under pharma, the largest alcoholic beverage company, the largest manufacturer of adhesives and sealants in India. “Nifty Next 50 has exposure to 19 unique industries not covered in Nifty 50. The total market cap of Nifty Next 50 companies has grown 2.5 times in the last eight years,” says Shaily Gang, head, Products, Tata Asset Management.
Over the last 10 years, the Nifty Next 50 ETF has delivered a 14.09% CAGR versus 15.05% from large-cap funds. “Many of its companies are emerging large caps on track to become tomorrow’s industry leaders, offering 16–18% earnings visibility and strong long-term potential,” says Mota.
Nifty Next 50 sits in a valuation sweet spot as it comprises large-cap companies that are currently valued attractively relative to their growth potential. It is beneficial for long-term investors as many of these businesses transition into stable, cash-generating large-cap leaders.
What to look out for
Investors should note that Nifty Next 50 ETFs generally exhibit higher volatility and deeper drawdowns compared to Nifty 50 ETFs. Thus, investors must go for systematic investment plans (SIPs) or systematic transfer plans (STPs) to manage volatility effectively.
Additionally, liquidity can vary significantly across ETF issuers, making it important to review trading volumes, bid–ask spreads, and assets under management (AUM) before selecting a product. Since this is a passive strategy, evaluating tracking error is crucial—investors should prefer ETFs with low and consistently stable tracking error to ensure efficient index replication.
“Nifty Next 50 ETFs come with elevated volatility and sharper drawdowns, making them ideal only for investors with a five to seven-year horizon,” says Aakanksha Shukla, assistant vice-president, Wealth Management, Master Capital Services.
For investors already holding Nifty 50 or large-cap funds, the Nifty Next 50 remains an excellent diversifier that adds growth exposure at attractive valuations.
