Nifty Total Market Index vs Nifty 50: A Comparative Analysis

Last Updated: 3 May 2024

Investors aiming to leverage the market’s expertise without selecting individual stocks, now consider index funds. These mimic specific stock market indices’ performances. In this context, two particularly intriguing Indian stock market indices emerge, including the Nifty 50 and its counterpart, the Nifty Total Market Index.

The Nifty 50, since its inception, has almost become synonymous with the Indian stock market. Indeed, people employ this index as an indicator not only of market activity but also reflecting the overall mood amongst investors.

Certainly, the Indian capital market presents several other indices as indicators. The Nifty Total Market Index, for example, is a popular alternative that provides a broader overview.

The Nifty Total Market Index surpasses the Nifty 50, which merely features the 50 largest companies based on market capitalisation. This index encompasses a broad spectrum of Indian stock market participants. It includes top-ranking entities from large-cap, mid-cap and small-cap segments – altogether representing around 750 diverse companies.

So, how does Nifty Total Market Index vs Nifty 50 stack up against each other? Let’s find out!

An Overview of Nifty 50

The Nifty 50 is a well-diversified benchmark stock market index for the Indian equity market. It includes 50 of India’s largest and most liquid companies listed on the National Stock Exchange. This index mirrors performance across various sectors of our economy.

NSE Indices Limited is a subsidiary of the NSE that owns and manages the Nifty 50 index. Calculated on a free-float market capitalisation basis, this method determines each stock’s index weightage by its free-float market capitalisation. It is semi-annually reviewed and rebalanced to maintain representation of the Indian equity market. This is how diligently it is managed at regular intervals.

Features of Nifty 50

1. Fifty of India’s largest and most liquid companies listed on the National Stock Exchange (NSE) make up this index. They represent a diverse range of sectors within the economy.
2. Each stock’s index weightage results from the determination of its free-float market capitalisation, a process that guarantees an accurate representation of the market.
3. The index includes companies from various sectors, providing diversification benefits and reducing concentration risk.
4. The high liquidity of constituent stocks ensures that index-based investment products boast better tradability and incur reduced transaction costs.
5. Various investment products, like mutual funds, exchange-traded funds (ETFs), and index funds, use the Nifty 50 as a benchmark. This allows investors to track and replicate performance within the Indian equity market.

What Does the Nifty Total Market Index Mean?

The Nifty Total Market Index, often known as the Nifty Total Stock Index, is a broad-based index that measures the performance of the Indian equities market. It is intended to track the performance of all firms listed on the National Stock Exchange (NSE), including those not included in the Nifty 50 index. 

The Nifty Total Market Index is a free-float market capitalisation-weighted index, which implies that each stock in the index is weighted according to its free-float market capitalisation. This guarantees that the index appropriately represents the total market capitalisation of the Indian equities market. 

Features of the Nifty Total Market Index

1. The NSE index covers approximately 800 equities from diverse industries, market capitalisations, and liquidity levels. 
2. Each stock’s index weightage is based on its free-float market capitalisation, accurately reflecting the total market.
3. The index’s inclusion of firms from big, mid, and small-cap groups promotes diversification and decreases concentration risk.
4. The index is rebalanced semi-annually to adjust for underlying firms’ market capitalisation and liquidity changes. 
5. It provides a benchmark for investors to evaluate asset allocation and performance throughout the Indian equities market. 

Difference Between Nifty 50 and Nifty Total Market Index

Here’s a table summarising the key differences between the Nifty Total Market Index vs Nifty 50:

Aspect	Nifty 50	Nifty Total Market Index
Index Representation	Represents the performance of the top 50 largest and most liquid companies listed on the NSE	Represents the overall performance of the entire Indian equity market, including all listed companies on the NSE
Number of Constituents	50 companies	Over 800 companies
Market Capitalisation	Includes only large-cap companies	Includes companies across all market capitalisations (large, mid, and small-cap)
Sector Representation	Limited to the top companies across various sectors	Comprehensive representation of all sectors in the Indian equity market
Weighting Methodology	Free-float market capitalisation-weighted	Free-float market capitalisation-weighted
Index Calculation	Calculated by NSE Indices Limited	Calculated by NSE Indices Limited
Rebalancing Frequency	Semi-annual	Semi-annual
Use Case	Benchmark for large-cap funds, ETFs, and other investment products focused on the top companies	Benchmark for broad-based funds, ETFs, and other investment products seeking exposure to the entire Indian equity market
Liquidity	Highly liquid	Varying liquidity levels, including less liquid small-cap stocks
Risk Profile	Lower risk due to focus on large, established companies	Higher risk due to the inclusion of mid and small-cap companies

Simply put, the Nifty 50 is a large-cap index that tracks the top 50 businesses. In contrast, the Nifty Total Market Index covers the whole Indian equities market, including all market capitalisations and sectors. The Nifty Total Market Index is a more complete depiction of the Indian equities market, but it has a more significant risk because it includes mid- and small-cap firms.

Historical Performance Analysis

Nifty 50 and Nifty Total Market have demonstrated steady growth historically. Since its inception, the Nifty 50 has averaged an annual price growth of 11.21%, while the Nifty Total Market has seen approximately 12.99% growth. Take a look at the growth figures of Nifty Total Market Index vs Nifty 50 below.

Nifty Total Market Index Performance

Timeframe	Price Return (%)	Total Return (%)
Since Inception	12.99	14.54
1 Year	11.37	12.35
5 Years	11.32	12.54

Nifty 50 Index Performance

Timeframe	Price Return (%)	Total Return (%)
Since Inception	11.21
1 Year	8.42	9.53
5 Years	10.51	11.84

Please note, though, that this growth isn’t consistent. The stock market is highly volatile, and indices reflect this through price fluctuations. Periods of upswings and downturns are standard.

For instance, during the COVID-19 crisis, the stock market witnessed a substantial decline. Nifty 50 encountered a significant setback, dropping by 12.98% to 1,135.20 points. This marked one of its worst performances in history, closing at 7,610.25 points.

Conclusion

The decision between the Nifty 50 and Nifty Total Market Index depends on individual investment strategies and goals. While Nifty 50 provides stability with leading stocks, Nifty Total Market offers broad exposure to the diverse Indian market.

As you embark on your investment journey, consider your financial goals and risk tolerance. Keep in mind investing isn’t just about following trends but about making well-informed decisions that match your objectives.

Frequently Asked Questions

What sets apart the Nifty Total Market Index from Nifty 50?

While Nifty 50 focuses on the top 50 stocks by market capitalisation, the Nifty Total Market Index broadens this scope to encompass approximately 750 stocks, offering a more comprehensive market representation.

Why is the base date and value significant for the Nifty Total Market Index?

Established on April 01, 2005, with a value of 1000, the base date and value serve as a benchmark against which the index’s present performance and growth can be assessed.

Is the Nifty Total Market Index limited to large-cap stocks?

No, it covers stocks across large-cap, mid-cap, small-cap, and micro-cap segments, ensuring a diversified representation.