During the market rally in recent months, the Nifty 50 TR index (N50 EW) rose with the same weight above the Nifty 50 (N50) TR index. The one-year return on the N50EW minus the one-year return on the N50 has reached levels last seen four years ago.

Readers may remember our December 2019 that the return differential of the Nifty 50 versus the Nifty 50 Equal Weight Index hit an all-time high! This was clear evidence that Nifty (or Sensex) returns were driven by few stocks. Just three months later, the market crash destroyed the two-year imbalance between index stocks.

With Sensex or Nifty 50 or NIfty 100, only the few top stocks make up the largest part of the portfolio.

Nifty 50 equilibrium one-year TRI return minus Nifty 50 TRI one-year return (yellow), shown along with the Nifty 50 TRI
Nifty 50 equilibrium one-year TRI return minus Nifty 50 TRI one-year return (yellow), shown along with the Nifty 50 TRI

This should help active fund managers and is already evident in the one-year large-cap fund returns. A year or two ago this list was dominated by index funds (hence their current popularity). Today, the top ten are dominated by active large-cap funds and low-AUm index funds. As we pointed out earlier, after the market crash, 80% of active large-cap funds outperform Nifty, Nifty 100.

The situation in the lower part of the NIfty 50 has also improved, but not as much as in the upper half.

Nifty 100 Equilibrium TRI One-Year Return minus Nifty 100 TRI One-Year Return (yellow), shown along with the Nifty 100 TRI
Nifty 100 Equilibrium TRI One-Year Return minus Nifty 100 TRI One-Year Return (yellow), shown along with the Nifty 100 TRI

How big the differences are between the few top stocks in the NSE and the others can be better seen in the difference in returns between 2 and 3 years.

2Y return difference

Equal weight Nifty 50 TRI two-year return minus the Nifty 50 TRI two-year return (yellow) shown with the Nifty 50 TRI
Equal weight Nifty 50 TRI two-year return minus the Nifty 50 TRI two-year return (yellow) shown with the Nifty 50 TRI
Nifty 100 Equal TRI Two Year Return minus Nifty 100 TRI Two Year Return (yellow), shown together with the Nifty 100 TRI
Nifty 100 Equilibrium TRI Two Year Return minus Nifty 100 TRI Two Year Return (yellow), shown together with the Nifty 100 TRI

3Y return difference

Nifty 100 Equal TRI Three Year Return minus Nifty 100 TRI Three Year Return (yellow), shown together with the Nifty 100 TRI
Nifty 100 Equal TRI Three Year Return minus Nifty 100 TRI Three Year Return (yellow), shown together with the Nifty 100 TRI
Equal weight Nifty 50 TRI three-year return minus the Nifty 50 TRI three-year return (yellow), shown together with the Nifty 50 TRI
Nifty 50 Equal TRI Three Year Return minus Nifty 50 TRI Three Year Return (yellow), shown together with the Nifty 50 TRI

The stocks at the end of Nifty 50 or Nifty 100 have some catching up to do in terms of 2Y and 3Y returns. Hence, “the market” is not really overrated from this point of view. It will be interesting to see how active fund managers do from now on. It is also possible that the imbalance will return!

In this October 2019 review – Is It Time to Find ICICI Value Discovery & # 038; Quantum Long Term Equity? – I pointed out that those who appreciate value strategy should stick with these funds. Those who did this must have benefited from their recent resurgence.

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Both boy and girl versions of Chinchu are given a superpower
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About the author Pattabiraman Editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and lead author of freefincal. He is an Associate Professor at the Indian Institute of Technology in Madras. since August 2006. Connect with him via Twitter or Linkedin Pattabiraman co-authored two printed books, You can also be rich with goal-oriented investing (CNBC TV18) and Game changer and seven others free e-books on various money management topics. He is the patron and co-founder of “Paid India,“An organization promoting impartial, commission-free investment advice. He conducts free money management sessions for companies and associations based on money management. Include previous engagements World bank, RBI, BHEL, Asian Paints, Cognizant, Madras Nuclear Power Plant, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. Write to Pattu for a chat [at] freefincal [dot] com


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