These heavyweights—HDFC Bank, Reliance Industries, ITC, TCS, Infosys, and Kotak Mahindra Bank, collectively known as Hritik on Dalal Street, account for 40% of the Nifty 50 index.
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Data compiled by DSP MF shows that the market capitalization share of the top ten Nifty companies is hovering around 20%, an all-time low compared to the overall universe of stocks.
There are equal-weighted funds for the Nifty 50 and Nifty 100 indices in the industry, but none track the equal weight of the top 10 stocks in the Nifty index.
“Megacaps have been under-invested by retail investors lately as they favored high-yielding mid and small caps, but are expected to regain popularity,” said Nirav Karkera, head of research at Fisdom.
The new fund launch will be a more concentrated portfolio betting that the big will become bigger. Since 2006, the Nifty top 10 equal-weighted index has also beaten the Nifty 50, Nifty 100 and Nifty 500 indices.
“Large caps account for 70% of the market cap, more than 70% of profit & more than 75% of free cash flow but it’s getting 10% of the flows,” said Sahil Kapoor, Market Strategist at DSP Mutual Fund. “This part of the market has underperformed, so the price froth is absent.”
Kapoor added that sectors such as banks, IT, and FMCG have been underperforming, and he believes that they are available at attractive valuations as they have underperformed relative to the broader markets.
The top 10 companies mainly consist of stocks from the banking, IT, and FMCG sectors. This year, the Nifty 500 rose 30%, whereas the Nifty IT, Nifty FMCG, and Nifty Bank increased 22%, 15%, and 7%, respectively.
Retail investors in India have been welcoming factor-based passive funds to their portfolios. Mint had earlier reported that the asset under management of factor-based funds jumped 4x in the year through July from ₹7,050 crore to ₹26,363 crore.
Will the market cheer the HRITIK comeback?
Kapoor from DSP has a narrative. There is something called a polarization phase when a few stocks get the majority of the gains. In 2018 and 2019, HRITIK stocks rose 19% each year while the broader markets (Nifty 500) fell by 2% in 2018 and rose 9% in 2019.
Kapoor argues that we may be entering a polarization phase, where a few stocks drive the majority of market gains—a trend seen in 2018 and 2019 when HRITIK stocks outperformed the broader market.
In contrast, the recent years have seen a depolarization phase, with returns driven by a broader range of stocks.
Lately, the market has been the opposite of a polarized market. From March 2020 till July 2024, the Nifty top 10 equal-weighted index gave a CAGR of 27% whereas the Nifty 500 gave a 24% return. Depolarization is when a large number of stocks drive the overall returns of the market while a few heavyweights underperform.
“The last few years are a reflection of a depolarization phase,” said Kapoor. “We are betting for a polarization phase now.”
The new fund offering (NFO) of this scheme will be open from 16 August to 20 August.
Should you invest?
Investors need to get the timing right in these kind of funds, said Bhavana Acharya, head of MFs and equities at Prime Investor. The top 10 stocks comprise mainly the banking, IT, and FMCG stocks and the investor needs to have the conviction that these sectors will outperform going forward. “Ask yourself if you expect these sectors to move,” said Acharya.
Such a scheme can form a part of your overall portfolio, but you should not use this as a substitute for owning the broad market indices such as Nifty 50, added Acharya.
“After all, these are exotic strategies, but the broad market indices deliver the base returns which you don’t want to miss out on.”
One should be clear about what these strategies try to achieve and not lose sight of it, she said, adding most investors should not bet on the timing of which market cap segment will outperform.
Acharya advises investors to stick to a particular asset allocation and keep rebalancing it in defined intervals instead of timing the markets.
