Nifty 500 or S&P 500? Where to invest when stock market is near all-time highs

As compared to the Nifty 500, the S&P 500 is relatively less volatile and has experienced much lower drawdowns during crisis periods.

When it comes to building a portfolio of stocks, the broader the canvas, more is the diversification across sectors and market capitalisation. To an investor, a bouquet of stocks in the Nifty 500 and S&P 500 will serve the purpose well. While Nifty 500 is a representation of the top 500 domestic companies across 20 industries, the S&P 500 includes nearly 500 leading corporates across about 11 sectors and is considered to be the top-most single indicator of large-cap US stocks.

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And, if you are only investing in Nifty 500 stocks, you are probably missing out on the big global investment opportunities available in the US stock market. Some of the top US companies are global giants when it comes to their market capitalization, revenues and worldwide out-reach.

Here’s how they stack up in terms of market capitalization. To be included in S&P 500, companies must have an un-adjusted market cap of USD 13.1 billion or greater which is about Rs 95000 crore!

Reliance has the highest market cap of nearly $192 billion (Rs 14.6 lakh crore) and is part of Nifty 500, while among S&P 500 stocks, Apple has the highest market capitalization of nearly 2.40 trillion dollar (Rs 146 lakh crore)*

Holding US stocks in your portfolio helps to diversify across economies. Globally stocks markets are near all-time highs and one should consider investing in US stocks at this stage, whether in Nasdaq 100 stocks or S&P 500 stocks. “The question here is, should you invest in US stocks because they are at an all-time high, or should you invest in the US market as a portfolio strategy regardless. If we disregard the information about the level of Nasdaq, every portfolio should have some exposure to International markets for diversification,” says Anup Bansal, Chief Investment Officer, Scripbox

So, if you are investing across the domestic space and picking stocks from the Nifty 500 index, the S&P 500 can give you that extra edge which you want to bring to your portfolio – less volatility and higher resilience. “On a USD basis the Nifty 500 often struggles as compared to the S&P 500. This has been especially true in the post Lehman world where the performance of the Nifty 500 has been poor as compared to the S&P 500 in INR terms” says Ashish Ranawade, Head of Products, Emkay Wealth Management.

“As compared to the Nifty 500, the S&P 500 is relatively less volatile and has experienced much lower drawdowns during crisis periods. More than that the recovery post a market fall has been much faster in the US stocks than in the Indian Markets.

In a post covid world (and post Lehman world) where we have seen the double edge sword of Liquidity and Technology slashing through market drawdowns, there is a strong case for investing overseas both for diversification and for superior returns,” adds Ranawade.

If picking the right stock out of S&P 500 is taking time, speak to your international broker or buy the SPY ETF that tracks the S&P 500. “While technology stocks have been in focus over the past few years, it is advisable to invest in the broader S&P 500 index as well along with Nasdaq, through the route of Index Funds/ETFs,” says Bansal.

* The comparison does not take into account the Purchasing power parity between the two countries.
Rs 1 trillion is Rs 1 lakh crore while 1 trillion dollar is close to Rs 73 lakh crore; 1 billion is Rs 100 crore; 1 billion dollar is Rs 7300 crore