In the ongoing defeat in small and intermediate spaces that emitted portfolios, investors have been advised by experts to evacuate to large caps. But are all large caps safe?
Pounce out of the frying pan into the fire. This is a situation in which investors have found themselves.
The index, also known as the Nifty Junior, consists of large caps that are not part of the Nifty 50 index.
It’s not a difference, but there’s no small cap
The Nifty Next 50 Index has lost 22.3% since the end of FAG in September 2024, when the market entered the revision phase.
This was also the time when many indexes (Nifty 50, Nifty Next 50, Nifty Mid Cap 150, Nifty Small Cap 250) had the best time ever.
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The NIFTY Next 50 index is classified as a large index, but the 22.3% drop exceeds even a 20.2% drop in Small-CAP index. In contrast, Nifty 50 was revised at just 12.9% during this period.
This difference really makes sense when comparing the clever junior divisional composition to the clever 50 sectoral composition.
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The weights on sectors such as FMCG, healthcare, automobiles, and metals are roughly equivalent to 50 clever sectors, but they are absolutely the weights on sectors such as financial services, consumer services, electricity, IT, and capital goods. It’s a contrast.
The real estate sector, which has a 3.6% allocation for nifty juniors, has zero weights at the Nifty 50.
Snazzy junior stocks in financial services sectors such as IRFC, Rec and Jio Financial have fallen between 37% and 46% from their 52-week high. Similarly, consumer service space at IRCTC, Avenue Supermarts and Zomato has dropped by 23% to 35%.
Capital assets such as ABB, Bhel, Hal and Siemens have lost nearly 40%.
Three Adani Group stocks from the power sector (see infographic), JSW Energy, and NHPC lost 33% to 60%. Such deep cuts can be compared to corrections for small cap index components.
High Beta
Additionally, the beta (calculated with data from subsequent years) for the Nifty Next 50 index related to the Nifty 50 (Nifty 50) is considered to be very high at 1.41.
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This is just a few decimal points, 1.47, from the beta version of the Small-Cap index.
This shows that the clever juniors have been as unstable as the small cap index over the past year. So next time you hear a larger cap relatively placement, ask which type of larger cap.
After all, the Nifty 50 and Nifty Junior are just as different to chalk and cheese.
Investors should not rely on a large cap just for their size. It is also important to select the right inventory even in this segment. Evaluation is the most important thing.
Most of the aforementioned stocks were traded at an unsustainable valuation.
Therefore, when the market entered the correction phase, the large cap tag did not provide cushioning.
