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Nifty 50 Equal Weight Index vs Nifty 50 | Gaurav Jain - YouTube
Channel: Yadnya Investment Academy
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Hello friends, welcome to
Yadnya Investment Academy
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Today we are going to talk about
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that market cap based index
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Means we have normal
nifty 50 or sensex index
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and equal weight index, what is the
difference in between these two?
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and is there really a difference or not?
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And which one should we
choose if we want to invest?
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Right, quite a few
questions come sometimes on this
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So I said let's understand in detail
analysis, what is it?
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Ragini has helped me in this PPT
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She is a new intern
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She is doing internship
with us from
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NIBM, pune college
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I just want to thank her
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So now what is the
difference between these two indexes
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first equal weight index
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and market cap weight index
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market cap index is our normal
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We are on the benchmark
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let's take example of nifty fifty
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nifty fifty index is
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normal market cap weight index
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on the basis of free flow market
capitalisation
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there is weightage of stocks
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Reliance what you can see now
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is the most weighted stock, means
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if you invest in it
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in nifty fifty
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so almost 10 - 11% of the
money you are putting in
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Reliance only, out of 50 companies
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Okay, if it's 50 or 40 - 50 so then
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So there is some point
point investment in it.
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So Reliance obviously which is 2nd company
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will also have 6-7 percent
allocation
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Okay, so from the third
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the market weight of the stock
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It is calculated based on
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the freeflow market cap.
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ok and it changes daily accordingly
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so it goes like this, So
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larger the company and more
the weightage
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you have when you are investing there
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what happens in equal weightage
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the same 50 stocks, if we
talk about nifty fifity
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same fifty stocks but
everyone's weight will be equal
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that means 2%
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if we do nifty fifty, we have 50 stocks
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2% in each stocks
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that will be your investment
according to equal weight
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if you take equal weighted index
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so same stock but weightage
is different here
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so market is cap weighted and
this is equal weighted
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So I hope that it is ...
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So here that market cap bias ends.
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that means Reliance will
get only 2%
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and avenue supermart is 50th support
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that will also get 2%
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so the weightage of both
the companies will be same
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Now if we see the comparison
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so now you simply forget about comparison
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what is the difference in actual
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return comparison I have seen
of trailing returns, of performance
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so you will see
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Ever since 1999 nifty started tracking
this equal weightage index
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so it has given 15 points better
return according to this year on
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it is better in 20 years but
less in 15 years
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again less in 10 years
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then less in 7 years
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then less in 5 years
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then less in 3 years, so it means
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you see here one year six month
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and here from last, it has started
getting good returns all of a sudden
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so if you look like this,
there is no trend coming
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that equal weightage is consistently
doing better now
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in nifty fifty
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it is not clear from trailing atleast
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volatility if you ...
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infront of volatility if you see
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now if we see in last one year,
in six months
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so it is more for equal weightage,
in one year this is more
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so there is almost a equal volatility
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so there doesn't seem to be
a major difference
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apart from 1 or 2 part
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so specially here is six month,
volatility of equal weightage is slightly higher
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so volatility wise nothing seems awesome
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risk, return risk ratio if we will see
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so there also, returns are very good here
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it is visible here
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after that return risk looks
better to me here
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but it has gone littile bit down
regularly in between
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so when the returns are getting
higher then accordingly
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risk wise there is not much difference
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so now let's see the calender returns too
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in trailing there, no trend is visible
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Is there some trend in calender? let's see
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In calender too there is no trend
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so if we see from 1999
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so first equal weightage did it,
then other, again equal
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again equal, In 2002 equal weightage
had given much better return
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as compared to nifty fifty
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Right, In 2003 also it had
given very good return
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also gave very good in 2004
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in 2005 it was same
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then if you look in between,
they have given less also
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good returns till 2009
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then in 2010 gave less
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in 2011 performance was bad
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in 2013 performance was significantly bad
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of equal weighatge
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Right, So till here it was going well
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then their performance
deteriorated suddenly
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in 2017 also performance was less
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there is a lot of difference in 2018
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they had negative, they had positive
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what happenned in 2018?
Quality.... quality
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there was Reliance driven rally
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Reliance and Hindustan Lever
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what they say was HDFC bank and
HDFC Ltd. driven rally
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in 2018
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because of them
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The bigger, higher weightage
stocks grew a lot
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same in 2019 also,
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Reliance and in 2019 - 20 also
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well at that time Reliance and
other companies did very well
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which were high quality companies
or top companies
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kotak mahindra bank and all others
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nifty fifty did better because of that too
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but now again in 2020 it did well
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the equal weightage
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So is there any trend visible?
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Nothing is special, means
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if we see
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so far it seems that
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there is not much change
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so if we see beta related then
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mostly beta of equal weightage
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was slilghlty less in the long term
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risk wise volatility was little less
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in last six months it was more
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so there is not much difference
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nothing major difference
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If you see the correlation, then
it is obviously fine
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due to same stocks correlation
will be higher
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but there is correlation of
97 - 98% in both the stocks
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and in their performance
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so from this it is known
that, we can do any
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there is not much difference
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if we see equal weighted
and their pros and cons
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we will know that in equal weighted
diversification is better
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because your weightage have
become equal, Right
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so you are not like that, I am more
dependent on Reliance
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whether 10% or 11% I am
dependent on the same company
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on HDFC bank, HDFC ltd. or Hindustan Lever
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means dependent on weightage
of these type of companies
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So behind small companies 50th
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not of small companies but
46, 57, 58
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I have a good allocation
even in this type of companies
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So diversification is better
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Right, So ......
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So in large cap stocks
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you do more in larger stocks,
Right
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so here is diversification,
for the same reason
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equal weightage fund
focus on value investing
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which is considered to many market
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So value investing means
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you are giving same weightage to all
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so you are giving same weightage
to company priced below
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and same weightage to higher valued one
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so you are putting them
in same weightage
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Right.
Who who ...?
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portfolio turnover ratio weight increases
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for rebalancing portfolio
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we have to rebalance regularly
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and its transaction cost is higher
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right, and they are
more vunerable to sudden volatile drop
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in value during a bear market phase
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so what happens in bear market phase?
especially the smaller companies
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they fall very often
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and bigger companies get
sold
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because of that, there may be some
problem to them during that time
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Right, but
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this is final that
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Performance results aside,
we don't believe that
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either approach is inherently
better or worse
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they just work differently.
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but performance wise if we see
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there is no trend visible friends
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you have to take any index
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if you want to take equal
weightage, take equal weightage
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if you want to take normal
index of nifty fifty
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for that no big trend is visible
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there is very high corelation
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there is not much difference in their beta
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so risk is not high and not like
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taking more in equal weightage
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So basically it is a question like
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buy whatever you like
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there is not much difference
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Right
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So I hope that you got
the answer
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If you have any question please do
write in comment section
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Right, Have a great time ahead friends,
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Jay Hind
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