Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

As the share of benchmark indices in the overall market capitalisation steadily declines, it’s becoming evident that indices like the Nifty50 and the BSE Sensex are losing their relevance. Once the bellwethers of India’s financial markets, these indices now represent a shrinking portion of the stock market, with the Nifty50’s share of market cap plunging from 58.9 percent in FY21 to just 43.9 percent by August 2024. Similarly, the BSE Sensex now accounts for only around 35 percent of BSE-listed stocks.

This dramatic shift is partly due to the explosive growth of mid-cap, small-cap, and microcap stocks. While Nifty50 stocks saw a 77 percent rise between FY21 and FY24, mid-cap stocks surged 152 percent, small-caps gained 219 percent, and microcap stocks soared 334 percent. Such rapid growth outside the main indices means these benchmarks no longer truly reflect the broader market’s performance.

The crux of the problem is that investors and asset managers continue to rely on these outdated indices, whether through index-based ETFs or hedging strategies. For instance, SBI-ETF Nifty 50, with an AUM of over Rs 2 lakh crore, is one of 22 ETFs tracking the Nifty50. But when the index no longer represents even half the market, how can it serve as an accurate tool for investment or risk management?

Contrast this with the S&P 500 in the US, which accounts for 80 percent of the value of traded shares, making it a far more comprehensive and reliable benchmark. India’s exchanges and regulators should take a cue from this and redefine what constitutes a benchmark index. A more meaningful and broader index that reflects the current dynamics of the Indian stock market will better serve investors, allowing for more accurate hedging and the creation of financial instruments that more genuinely mirror the market’s movements.

If exchanges fail to act, investors will increasingly find themselves trading on metrics that have little connection to the broader economy—a situation that benefits neither traders nor regulators in the long term. The time has come to reconsider and redefine the very indices that guide investment decisions.

Investing insights from our research team

Story continues below AdvertisementRemove Ad

Kaynes Technology — Latest acquisition to strengthen presence in smart meters

Titan Company: Robust Q2 growth; healthy long-term prospects

Are bank deposits making a gradual comeback?

Tracker

Monsoon Watch: The 2024 rainfall season ends with a healthy surplus

What else are we reading?

Will Iran-Israel war cause an agenda shift in the just rejigged MPC?

As central bank easing begins globally, RBI would tread carefully

Moneycontrol Pro Market Outlook | Markets ripe for a bounceback

RBI should stick to wait and see approach

The Eastern Window | Whether it's Trump or Harris in office, US policy on Middle East will be written in Tel Aviv

As investments rise at Sun Pharma, watch out for impact on profit margins

Chart of the Day | What's driving logistic sector's growth?

‘No more bailouts’: the missing US campaign slogan (republished from the FT)

New titans of Wall Street: How Jane Street rode the ETF wave to ‘obscene’ riches (republished from the FT)

Israel-Hamas conflict a year on shows realpolitik is the only reality

Affordable Intellectual Power: India's new weapon in the economic battle to beat China

Markets 

Valuations in defence sector are comparatively high, but there is growth to justify: Fund manager
Technical Picks: LTIMindtree, Finolex Industries.

Shishir Asthana
Moneycontrol Pro