What is your market benchmark?

The Surprising Performance of Nifty Junior

In the world of finance and investing, benchmarking is a crucial tool for evaluating performance. It allows investors to compare the returns of their investments to a particular index or benchmark. The most commonly used benchmark in India is the Nifty 50, which includes the top 50 companies listed on the National Stock Exchange (NSE). However, there is another benchmark that might surprise you with its outperformance over the years – the Nifty Junior.

We analysed the performance of three indices: Nifty 50 (orange line), CNX 500 (dark blue line), and Nifty Junior or Nifty Next 50 (light blue line). The charts span over a period of 25 years, providing a comprehensive view of their historical performance.

What is truly surprising is that the Nifty Junior, which consists of large-cap companies just below the Nifty 50, has consistently outperformed both the CNX 500 and even the Nifty 50 itself. This goes against the common belief that large-cap stocks tend to move slower and generate lower returns compared to mid and small-cap stocks.

When we consider the returns over the 25-year period, Nifty Junior has outperformed with an impressive 2700% gain, followed by CNX 500 with 2400%, and Nifty 50 with 1800%. These numbers indicate that any strategy based on the Nifty Junior or any of these indices would have performed exceptionally well.

Performance from GFC Crisis Bottom

But let’s dive deeper into the performance during specific market phases. Looking back to the 2008 market bottom, the outperformance of Nifty Junior becomes even more stark. It gained 1300% compared to 830% for CNX 500 and 685% for Nifty 50. This suggests that even during challenging market conditions, Nifty Junior has displayed consistent strength.

Performance from GFC Crisis Bottom

When we consider the more recent COVID bottom, the CNX 500 has performed slightly better than Nifty Junior. However, it is worth noting that Nifty Junior and Nifty 50 have exhibited similar performance patterns in the past few years. While Nifty Junior may have underperformed for a significant period, it has recently seen a sharp upward trend.

Based on these findings, it becomes evident that Nifty Junior has performed exceptionally well over the long term. This raises the question of whether it should be considered as a key benchmark for large-cap oriented investments. By using Nifty Junior as a benchmark, investors can evaluate the performance of their portfolios more accurately and gauge their success against a relevant index.

it is surprising to observe that the Nifty Junior, consisting of the next 50 stocks in the market, has been consistently stronger than the top 50 stocks. This suggests that Nifty Junior could be a logical answer for investors looking to beat the Nifty Next 50 index and achieve greater returns.

On the other hand, the CNX 500 and Nifty 50 have lagged behind the Nifty Junior, further emphasising its strong performance. Therefore, the choice of benchmark becomes crucial in determining the success of an investment strategy.

Mi NNF 10 was created to try and extract alpha from this strong Nifty Junior index and has been exceptional since its launch back in Nov 2020.

The strategy has recorded an absolute return of 127% at a solid CAGR of 29.7% (as on 18 Jan 2024).

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Disclaimer: Investments in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors

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