Nifty Non-Cyclical Consumer Index

Non-cyclical industries form the bedrock of our daily lives, providing goods and services essential for sustenance regardless of the economic climate. These sectors, ranging from consumer goods to telecommunications, demonstrate stable demand patterns that endure economic fluctuations. In times of uncertainty, they offer a reliable anchor to the economy, maintaining steady demand levels even when cyclical industries experience volatility. This stability makes non-cyclical industries an attractive prospect for investors seeking consistent returns amidst market turbulence.

Given the pivotal role non-cyclical industries play in maintaining economic stability, investors are increasingly recognizing the importance of including them in their portfolios. But how does one select the right non-cyclical stocks for their investment portfolio?

Enter the Nifty Non-Cyclical Consumer Index. The Nifty Non-Cyclical Consumer Index aims to track the performance of a portfolio of stocks that broadly represent the Non-Cyclical Consumer theme within basic industries such as Consumer Goods, Consumer Services, Telecom, Services, Media, Entertainment, Publication, Textiles, and others.

The largest 30 stocks from eligible basic industries are chosen based on their 6-month average free-float market capitalization as of the cut-off dates at the end of January and July. The weight of the stocks in the index is based on their free-float market capitalization, with the weight of a stock in the index capped at 10%

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Sector Breakdown and Weightage

Analysis of Included Industries:

The index encompasses a diverse range of industries vital for daily life and economic function, including consumer goods, consumer services, telecommunications, media, entertainment, publication, textiles, and basic services.

Distribution of Weights Among Sectors:

The weightage of each sector in the index reflects its importance within the non-cyclical consumer landscape. Sectors such as fast-moving consumer goods (FMCG), consumer services, and consumer durables typically command significant weightage due to their essential nature and widespread consumption.

Sector Breakup:

Sector

Weight

Fast Moving Consumer Goods

42.49%

Consumer Services

20.71%

Consumer Durables

20.37%

Telecommunication

12.15%

Services

2.38%

Textiles

1.11%

Media, Entertainment & Publication

0.78%

Comparative Analysis

Historical Beta Relative to Nifty 500:

The beta of the Nifty Non-Cyclical Consumer Index relative to the Nifty 500 Index has ranged between 0.66 and 0.98 since CY2005, highlighting its historically lower volatility compared to the broader market.

Comparison of Beta

Year 2005 2006 2007 2008 2009 2010 2011 2012 2013
Beta relative to Nifty 500 0.98 0.98 0.83 0 0.82 0.81 0.78 0.72 0.69 0.85
Year 2014 2015 2016 2017 2018 2019 2020 2021 2022
Beta relative to Nifty 500 0.66 0.79 0.83 0.87 0.88 0.81 0.76 0.72 0.89

Top Constituents of the Index:

The index comprises top-performing companies such as Bharti Airtel Ltd., Hindustan Unilever Ltd., ITC Ltd., Titan Company Ltd., and Asian Paints Ltd., among others, reflecting their dominant positions in their respective sectors.

Top Constituents:

Company Name

Weight (%)

Bharti Airtel Ltd. 

10.97%

Hindustan Unilever Ltd. 

9.11%

ITC Ltd. 

8.69%

Titan Company Ltd. 

7.99%

Asian Paints Ltd. 

6.72%

Nestle India Ltd. 

4.89%

Zomato Ltd. 

4.64%

Trent Ltd. 

4.52%

Tata Consumer Products Ltd. 

3.95%

Varun Bevarages Ltd. 

3.58%

Performance Metrics:

Comparative Returns Over Various Time Horizons:

The Nifty Non-Cyclical Consumer Index has consistently outperformed Nifty 50, Nifty 500 and Nifty TMI , over multiple time frames, demonstrating its potential as a long-term investment option.

Better performance than Nifty 50

Index

CAGR_1y

CAGR_3y

CAGR_5y

CAGR_10y

CAGR_15y

NIFTY NON-CYCLICAL CONSUMER

30.80%

18.79%

17.22%

16.38%

17.66%

NIFTY 50

20.74%

17.12%

16.15%

14.57%

15.40%

Nifty 500

26.57%

20.19%

17.45%

16.04%

16.41%

Nifty TMI

26.47%

19.55%

16.46%

14.99%

15.23%

Sharpe Ratios and Risk-Adjusted Returns:

The index's favorable Sharpe ratios indicate superior risk-adjusted returns compared to broader indices, underscoring its ability to generate consistent returns while mitigating risk.

Sharpe Ratio:

 

15 years

10 years

5 years

Fund

Returns

Std

Sharpe

Returns

Std

Sharpe

Returns

Std

Sharpe

NIFTY NON-CYCLICAL CONSUMER

17.66%

5.03%

1.57

16.38%

4.24%

1.96

17.22%

4.50%

2.09

NIFTY 50

15.40%

5.70%

0.99

14.57%

4.84%

1.35

16.15%

5.61%

1.49

Nifty TMI

15.23%

5.93%

0.92

14.99%

5.00%

1.39

16.46%

5.75%

1.51

Evaluation of Drawdowns and Stability:

During bear markets, the Nifty Non-Cyclical Consumer Index has demonstrated greater stability and resilience compared to the Nifty 50, further highlighting its attractiveness for risk-averse investors.

More stable during drawdowns and better risk-adjusted returns:

 

NIFTY 50

NIFTY NON-CYCLICAL CONSUMER

Feb-April 2008

-24.49%

-23.92%

Sept-Dec 2008

-45.13%

-36.46%

Aug-Oct 2011

-14.07%

-7.93%

April-June 2012

-9.14%

1.08%

June-Sept 2013

-6.84%

-0.90%

Oct 2015 - Jan 2016

-6.68%

-11.13%

July - Sept 2019

-10.29%

-3.83%

Feb - April 2020

-34.42%

-16.04%

May -July 2022

-10.71%

-6.86%

Oct - Dec 2022

-6.52%

-10.46%

Jan - April 2023

-7.61%

-6.21%

Valuation Analysis:

Historical P/E Ratio Trends: The index's current price-to-earnings ratio is below its five and ten-year averages, suggesting that it may be trading at an attractive valuation relative to its historical levels.

Valuations look favourable, with current P/E is below 5 and 10 year average

 

10-year average P/E Ratio

5-year average P/E Ratio

Current P/E Ratio

Nifty Non-Cyclical Consumer Index

101.01

140.99

59.35

Potential for Growth and Future Outlook:

Macroeconomic Factors Driving Growth:

Rising per capita GDP, urbanization, and digitization are expected to drive higher consumer spending, benefiting sectors represented in the index.

Demographic Trends and Market Dynamics:

With a young median population and increasing disposable incomes, the demand for non-cyclical goods and services is likely to grow, contributing to the index's future growth potential.

Opportunities and Risks Ahead:

While the index presents attractive growth opportunities, investors should also consider potential risks such as regulatory changes, competitive pressures, and global economic uncertainties.

In conclusion, the Nifty Non-Cyclical Consumer Index offers investors exposure to stable and resilient sectors that provide essential goods and services, making it an attractive option for those seeking stability and consistent returns in their investment portfolios. With its diverse composition, historical performance, favorable valuations, and promising growth prospects, the index stands as a robust investment opportunity within the Indian market landscape.

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