Nifty Next 50: A Blend Of Attractive Valuations And Built-In Diversification

By Chintan Haria, Principal - Investment Strategy, ICICI Prudential AMC

Investors often focus on the Nifty 50 which is the country’s headline index of blue-chip leaders. Yet, just below it lies a lesser-known but equally powerful basket of stocks: the Nifty Next 50. This index tracks the next line of companies from the Nifty 100, after removing the Nifty 50 constituents. In many ways, it represents India’s future large-caps, which are firms on the cusp of joining the elite list.

The bridge

The Nifty Next 50 captures businesses that have already achieved scale but are still expanding aggressively. They tend to sit between traditional mid-caps and large-caps in size and risk. Over time, several well-known companies have graduated from this pack into the Nifty 50, highlighting its role as a pipeline of tomorrow’s leaders.

The index spans diverse industries, from manufacturing and power to consumer services. It offers a broad picture of India’s economic growth beyond the top 50 names. That makes it a valuable complement to a Nifty 50-based portfolio.

Attractive valuations

Valuations tell a clear story. As of October 2025, the Nifty Next 50 trades at a price-to-earnings (P/E) multiple of 20.66 times, which is well below its five-year average of 26.01 times. The Nifty 50, by comparison, stands at 22.64 times, above its long-term average of 24.13 times.

In plain terms, currently the Nifty Next 50 offers exposure to high-potential businesses at a discount to the headline index. When valuations are reasonable, investors entering through ETFs or index funds can gain a wider margin of safety while retaining equity-market growth potential.

Built-in diversification

A key attraction of the Nifty Next 50 is its balanced weight structure, which ensures that performance is not overly dependent on a handful of companies and reduces concentration risk. Its top five stocks contribute only about 17.7 per cent of the index’s weight, while the largest stock holds only around 3.81 per cent.

It also means that industries relatively under-represented in the larger benchmarks, such as power, capital goods, consumer services, or chemicals, can find meaningful representation here. For investors seeking exposure to India’s next line of leaders and a well-diversified equity basket, this balanced composition offers a good opportunity.

ETF or index fund?

Both Exchange Traded Funds (ETFs) and index funds track the same index but operate differently.

ETFs (Exchange-Traded Funds) trade on the stock exchange like shares. Investors can buy or sell units throughout the day at market prices. They suit those who have demat accounts and have the benefit of intraday execution.

On the other hand, index funds are mutual-fund variants that mirror the same index passively but transact once a day at the fund’s Net Asset Value (NAV). They are ideal for SIP investors who prefer simplicity without tracking live prices. Both structures carry low expense ratios. For long-term wealth builders, they provide cost-efficient access to market returns.

Volatility, time horizon

The Next 50 index historically shows higher short-term volatility than the Nifty 50, since its constituents are smaller and more sensitive to earnings swings. However, that volatility often translates into better return potential over longer horizons as successful firms graduate into the main index. Hence, investors should approach the Next 50 with a long-term view and avoid reacting to short-term moves.

Portfolio play

Investors can allocate to the Nifty Next 50 through either SIPs in index funds or direct ETF purchases. It works well alongside Nifty 50 exposure or broader diversified equity funds.

For conservative investors, pairing it with short-duration debt funds can stabilise overall portfolio volatility. For long-term equity savers, combining Nifty 50 and Next 50 funds can be a good option. This can be a cost-efficient way to capture India’s full large-cap opportunity set.

When paired with disciplined investing and patience, this “next-in-line” index can quietly power the next phase of wealth creation.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)