Conventional wisdom in markets says that diversified investments within broad indices by going beyond top heavyweights largely helps in generating high returns. It is also generally believed that top heavyweights in broad indices only offer stability to a portfolio, and not provide great returns. However, these observations do not hold true in the case of the top five heavyweights of the Nifty50 index.
Sifting through the performance data of the Nifty50 stocks in the past one- and three-year periods show that merely investing a large part of one’s investment corpus into the top five heavyweights would have paid off rich dividends.
The average returns of Reliance IndustriesNSE -0.20 %, HDFC, HDFC BankNSE -0.64 %, Hindustan UnileverNSE 0.19 % and ITCNSE 0.10 % have been 19 per cent, and 75 per cent in the past one-year, and three-year time frames respectively. Over the same time frames, the top five heavyweights have outperformed the remaining 45 Nifty stocks by 20.5 per cent and 17 per cent respectively, while the Nifty50 index has delivered 8 per cent, and 47.7 per cent respectively.
The five stocks together have 35.6 per cent weight in the Nifty50. In addition, none of them failed to generate returns in any of the three time frames. This is impressive considering that in the past year, 35 of the Nifty50 stocks failed to deliver positive returns.[“source=economictimes.indiatimes”]