Nifty is an attractive topic for all types of stakeholders. These include investors, analysts, business leaders and managers, market operators, advisors, policy makers and watchdogs. Nifty seems to be on a boom right now. It has crossed the 15800 level even in the environment affected by Covid-19 and is making a record high.
Meanwhile, Nifty has also completed its 15 years. In such a situation, it becomes relevant to take a look at this long journey. For this, a better approach would be to compare the performance of Nifty over 25 years with mutual funds and select stocks.
The Nifty has achieved a year-on-year growth (CAGR) of 10.75 per cent during this period. Which has also been better than the country’s GDP growth and returns from gold during this period. At the same time, the performance of mutual funds and major stocks has also been impressive during this period. Of the 22 mutual funds that have completed a 25-year journey with the Nifty, 17 funds have outperformed the Nifty.
Looking at the Nifty stocks, 13 stocks that have been part of Nifty since the inception of Nifty have shown a growth of 17 per cent year-on-year in these 25 years. Of these, HDFC Bank, ICICI Bank, HDFC, Dr. Reddys Labs and Reliance have been the top performers while Tata Motors, Hindalco and Tata Steel have underperformed.
If we look at the CAGR yield of Nifty from 1996 to 2020, the year 2003 and 2009 got strong returns of 71.9 per cent and 75.76 per cent, while in 2008 it got negative returns of 51.79 per cent and 2011 at 24.62 per cent.
From this it can be concluded that Nifty has given good returns in the long run but it depends on whether the investor has bet on fundamentally strong stocks and maintains confidence in these stocks amidst market volatility. remained for a long period of time.
In this 25 year journey of Nifty, some investment mantras have emerged for us. As Nifty is formed on the basis of weightage, it includes 50 stocks whose selection is based on their listing history, liquidity, free float market capitalization and trading frequency.
The value of the index is calculated on a real-time basis on a daily basis and the stocks included in the index are subject to change from time to time. Many stocks that were once included in the Nifty have now become penny stocks. Stocks with higher weightage are often on the driving seat and the face of the drivers seated in the driving seat changes from time to time.
Do not rely solely on the index
Indices like Nifty help us to understand the direction and condition of the market but they do not keep the complete picture of the market in front of us. Outside the index also, there are many such stocks belonging to mid and smallcap space which are scaling new heights.
At the same time, there may be some such stocks in which there is a huge decline or in which there is no movement at all. If your portfolio is well diversified with good stocks, then your loss from one stock can be offset by profit from another stock.
An investor should keep a close eye on the market. Sometimes it happens that due to movement in few stocks, the market can go up or down. Many times it has been seen that the index has been shown making new highs only on the basis of 2-4 stocks, whereas the reality is that a large part of the market is under pressure.
For example, in 2019, the market reached new highs despite the slowdown in the economy due to the outperformance of some heavy weights. Similarly, during the first wave of the corona pandemic, we saw the market reaching new highs soon after the initial drop. Even during the second wave of Corona, when India has not come out of this crisis completely, the Sensex-Nifty seems to be making new highs.
Another important mantra that emerges from the 25-year journey of Nifty is that investing in mutual fund schemes is also not that easy and it does not work every time. We need conviction and discipline in investing. During this period, many investors have been seen wasting their money on misleading market tips. People bet on penny stocks out of great greed.
In general, long-term investments are profitable. Investors should bet on stocks with a strong business model, fundamentally sound and well-managed. Keeping all these things in mind, those who had bet on Kotak Bank, HDFC Bank and Reliance Industries made a good profit.
According to the next investment mantra, we should periodically revise and review our portfolio as per the need.
Apart from this, retail investors should take the help of professional investment advisors. Stock brokers, certified planners and wealth managers can assist small investors in choosing the right stocks and mutual fund schemes.
Facebook us for social media updates (https://www.facebook.com/moneycontrolhindi/) and Twitter (.) to follow.