Nifty 500 investing decoded

India, with its 28 states and 8 union territories, is a union of contrasts and complements. Gujarat’s industrial grit, Bengal’s cultural richness and commerce, Punjab’s agricultural heartland, Maharashtra’s financial nerve center, Tamil Nadu’s manufacturing strength, and Karnataka’s technological innovation—each region contributes uniquely to the nation’s soul and economy.

In the corporate sphere, the Nifty 500 mirrors this unity in diversity. Comprising 500 companies spanning every sector imaginable, the index captures the essence of India’s multifaceted economy.

Just as every state and union territory adds to India’s identity, every company in the Nifty 500 plays a role in shaping the nation’s financial and industrial landscape. 

From large-cap titans driving global outreach to mid-caps fostering innovation and small-caps harnessing potential, the index reflects the collective strength of India’s entrepreneurial spirit.

Wide market coverage

The Nifty 500 Index captures the pulse of India’s expanding economy, offering exposure to emerging sectors and growth stories.

With coverage of approximately 94 per cent of the total listed equity universe in India, the Nifty 500 provides unparalleled representation of the country’s corporate sector. In contrast, Nifty 50 and Nifty 100 focus on larger companies, with Nifty 50 tracking the top 50 blue-chip stocks and Nifty 100 extending to the top 100.

Nifty 500 constituent companies span over 50 industries, including traditional sectors such as banking and energy, as well as niche industries like chemicals, aerospace, and leisure. This broad exposure enables investors to benefit from sectoral growth trends while mitigating risks associated with individual stock volatility.  

Diversification across market caps

The Nifty 500 is strategically weighted to include large, mid, and small-cap segments, adapting to changing market dynamics. 

As of October 2024, large cap stocks comprised 71 per cent of the index, mid cap stocks 19 per cent, and small cap stocks 10 per cent, reflecting a balanced allocation. This dynamic diversification ensures that investors capture growth across various market capitalisations while maintaining a stable portfolio foundation.

Index methodology, reconstitution

The Nifty 500 follows a robust selection methodology. Starting with the top 800 companies by turnover and market cap, it narrows down to 500 based on free-float market capitalisation. 

Reconstitution occurs semi-annually to ensure the index remains aligned with market realities, while weights are adjusted based on free-float criteria.

India’s growth and the Nifty 500

India’s economic growth trajectory further underscores the relevance of the Nifty 500. Projections indicate that India’s nominal GDP could grow to $7 trillion by 2030 from $4 trillion now, making it one of the fastest-growing economies globally. The index, with its broad sectoral representation, is well-poised to capture the growth of key industries driving this expansion, from technology and manufacturing to financial services.

Why consider Nifty 500 investing

The Nifty 500 index offers comprehensive diversification, covering 500 companies across various sectors to minimise stock-specific or sector-specific risks. Cost-efficiency of these index funds, achieved through lower management fees, makes it ideal for maximising long-term returns. 

Additionally, the index’s transparent methodology ensures clarity and trust, making it a dependable choice for investors seeking steady growth and broad market exposure. These features collectively position the Nifty 500 as a versatile investment vehicle aligned with India’s economic potential.

(The author is Principal- Investment strategy, ICICI Prudential AMC)