The NSE Nifty Next 50 Index is currently standing out as India's most promising stock index, attracting investors with its strong performance amid a market that is flirting with all-time highs.
Earnings growth has become a crucial indicator of success. Being composed of companies that are considered for inclusion in the Nifty 50, this index has witnessed a 20% increase in its forward profit estimates this year, significantly surpassing the 3.5% growth of its larger counterpart. The Nifty Next’s leading sectors include industrial and materials companies, which are reaping benefits from an economy projected to expand by over 7% in 2024.
According to Gary Dugan, the chief investment officer at the Global CIO Office, astute foreign investors are venturing beyond the Nifty 50, drawn by the robust GDP contributions of the companies within the Nifty Next 50.
An eight-year surge in the value of Indian blue-chip stocks has led to inflated valuations, prompting international funds to widen their search for lucrative opportunities within the $4.6 trillion market. Moreover, the increasing allure of equities in China and other regions is pressuring local enterprises to showcase growth in earnings and investment returns.
Forecasts suggest the Nifty Next 50 is poised for a 39% growth in earnings over the next year. This growth trajectory is expected to sustain the index’s 65% rally over the previous year, despite the broader market's challenges. Remarkably, the index has recorded its best quarter since 2009 when compared to the larger NSE Nifty 50 Index.
Some of the index's most significant stocks, such as Bharat Electronics Ltd., Hindustan Aeronautics Ltd., and Canara Bank Ltd., have seen increased investment from global funds, as noted by Rupal Agarwal, Asia quantitative strategist at Sanford C. Bernstein.
While these second-tier stocks are outperforming their larger counterparts, they are also surpassing smaller shares. The Indian small caps gauge has experienced a correction, erasing over $80 billion in market value due to concerns over high valuations and extreme volatility.
Agarwal believes the Nifty Next offers foreign investors an excellent opportunity to engage with India's growth narratives, such as manufacturing and public sector projects, without the concerns of liquidity.
