Investing in India's Tomorrow: The Comprehensive Power of the Nifty Total Market Index

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It's a great time to be an Indian investor.

We are the world's fastest growing economy: Q3 of 2023-24 witnessed a phenomenal 8.4% GDP growth, and estimates suggest that the GDP is likely to more than double from current levels by 2031. We are also on track to overtake Germany and Japan to be the third largest economy by 2027, with a GDP of over $5 Trillion.

Other indicators are also bullish. According to the Deloitte Global Economics Research Center, our Current Account Deficit (CAD) narrowed to 1.9% of GDP in fiscal 2023 (and is expected to go down further in the next fiscal), while foreign exchange reserves have nearly doubled to US$568 billion. If that wasn't enough, we're investing heavily in infrastructure, we're transitioning our energy to cleaner sources, and India's digital transformation is already considered a masterclass on how to take 1.4 billion people along on a path to prosperity, and greater transparency.

At the heart of this growth lies India's most valuable asset - its young population. With a median age of 28.2, India is a young country with a young working age population: 554 million strong. This demographic dividend translates into a relentless pool of talent, innovation, and a trully enormous consumer base. This young India is driving domestic demand, in addition to fueling a vibrant services sector that now contributes a whopping 53.33% to the GDP. From IT giants like TCS and Infosys to a thriving healthcare industry, India's services sector is not just catering to domestic needs, but is a global force, making India a leader in the knowledge economy.

While services reign supreme, India is not a one-trick pony. Manufacturing is steadily gaining ground, accounting for 17% of the GDP. The government's initiatives like "Make in India" are attracting foreign investment and fostering domestic manufacturing capabilities, while incentives like the Performance-linked Incentives (PLI) scheme has revolutionized manufacturing in 14 strategic sectors leading to an increase of 76% in FDI in manufacturing sector. Over the next five years, the PLI schemes are expected to create 60 lakh additional jobs.

Growing Wealth with a Growing Economy

India's population participates in this growth in three key ways: through our effort, through our incomes and through our investments. Young India works hard, and invests harder. Savings and investments are almost a cultural phenomenon in India. This natural tendency towards savings is now bolstered by strong investor education, and enabled by technology. BSE-registered investor accounts reached a landmark of 10 crore on March 16, 2022. Of these, a whopping 60% have been registered in just the last 3 years.

Encompassing India's growth and wisely investing in it, can take skill and knowledge the average retail investor doesn't possess. However, when everyone from the market analysts to our friendly neighbor tells us to invest early, and invest often, the easiest option for the retail investor is usually mutual funds. Naturally, the gaze turns towards the Nifty 50, the benchmark index of the National Stock Exchange of India.

However, a crucial question arises: is the Nifty 50 a true reflection of the Indian economic juggernaut? Let's understand what the Nifty 50 is: a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange. In essence, this is an index that tracks India's industry heavyweights.

Beyond the NIFTY 50

It's important to point out that the true essence of India's economic potential doesn't solely reside within its corporate titans. It is often the mid, small, and micro-cap companies where innovation, agility, and untapped potential reside. Often, it is these companies that play a pivotal role in the grand narrative of India's growth. For context: L&T Technology, LIC Housing Finance, Jindal Steel, and Zee Entertainment are all part of the Nifty Midcap 50 Index.

Looking at historic returns across market capitalisations, midcap, smallcap and microcap indices often outperform Nifty 50.

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Source: NSE, Data as of 18th March 2024

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Source: https://www.niftyindices.com/reports/?option1=Archives%20of%20Daily/%20Monthly%20Reports&option4=Index%20Dashboard

There are several reasons for this. Midcap, smallcap, and microcap companies typically have higher growth potential compared to large-cap companies. These smaller companies are in their growth phase and have the potential to deliver substantial returns as they expand their operations and increase market share. Smaller companies are often more agile and can adapt quickly to changing market conditions, allowing them to capitalize on emerging opportunities and trends. Moreover, during certain market cycles, investors may show a preference for midcap, smallcap, and microcap stocks, leading to increased buying activity and price appreciation in these segments.

While individual indices like the Nifty Small Cap 100 and Mid Cap 100 offer insights into segmented portions of the market, the quest for a more panoramic view led to the creation of the Nifty Total Market Index or TMI

The Nifty Total Market Index

Unlike the Nifty 50, the Nifty TMI tracks a whopping 750 stocks, encompassing the entire spectrum of the Indian stock market – large, mid, small, and micro-cap. This comprehensive approach paints a far more accurate picture of India's economic potential.

Here's why the TMI might be the ideal investment for capturing this growth:

●     Superior Performance: Historically, the TMI has consistently outperformed the Nifty 50 across various timeframes. This is because it strategically blends the stability of large-caps with the high-growth potential of smaller companies.
●     True Market Representation: The TMI captures a staggering 98% of the NSE's total market capitalization, compared to the Nifty 50's 52%. This ensures you're invested in a far more representative slice of the Indian economy.
●     Unmatched Diversification: The TMI provides exposure to a wider range of sectors (22 compared to Nifty 50's 15), mitigating risks associated with overdependence on specific industries.

Aside from the benefits that accrue from greater diversification, from a performance standpoint, the Nifty TMI makes for a compelling case. As of this writing, there is only one mutual fund pegged to the Nifty TMI.

Source : NSE Data. As on 7th Feb 2024

https://www.niftyindices.com/reports/?option1=Archives%20of%20Daily/%20Monthly%20Reports&option4=Index%20Dashboard

Keeping Pace with India's Growth

India's economic growth story is undeniably impressive, and its future trajectory looks bright. However, the stock market doesn't always mirror the broader economy perfectly. While the Nifty 50 offers stability and familiarity, it paints a limited picture of a dynamic market. This is where the Nifty TMI steps in.

The TMI offers a compelling proposition: it tracks a wider universe of companies, and this comprehensive approach captures the true essence of India's growth potential – from established industry leaders to the agile innovators driving future advancements. Also, since the TMI has historically outperformed the Nifty 50, it offers the sweet spot of stability and growth potential. With a single mutual fund currently tracking the TMI, it presents a unique opportunity to invest alongside India's burgeoning economy.

As the Indian economy thunders ahead, consider this: The Nifty TMI might not just be a way to invest in the market, but a way to invest in the future of India itself.

Moneycontrol journalists were not involved in the creation of the article.