As Indian equities hit lifetime highs in November, investors have once again found themselves at crossroads — buoyed by confidence in the country’s long-term potential, yet cautious due to near term uncertainties.
Domestic cues have picked up pace in recent quarters on the back of robust GDP growth, resilient consumption trends and moderate inflation and interest rates.
On the other hand, global cues, interest rate moves and geopolitical headlines continue to drive sharp market swings. In this backdrop, low-volatility index-based offerings help investors stay invested while aiming to soften the impact of market noise. At the same time, largecaps also stand out not only for their inherent stability and lower volatility but also for their relatively attractive current valuations.
In this context, low volatility largecap indices-based ETFs and index funds are one way to stay invested in equities while aiming for a somewhat smoother experience. Three indices are often used for this purpose. The Nifty 100 Low Volatility 30 Index looks for relatively steady stocks from the large cap universe. The Nifty Alpha Low-Volatility 30 Index mixes low volatility with an “alpha” factor from a larger pool that includes selected midcaps. The Nifty Next 50 index holds the 50 companies that sit just below the Nifty 50 and represents the next rung of large caps. Together, they offer different but complementary ways.
What low volatility means
Volatility is how much prices move up and down. A highly volatile stock or index jumps around more. A lower-volatility stock or index tends to move in smaller steps, even though it still goes through rises and falls.
The Nifty100 Low Volatility 30 Index starts with the Nifty 100, which covers large, liquid Indian companies across sectors like financial services, IT, FMCG, healthcare, autos and more. From this universe, stocks are ranked by their past price volatility over the last one year. The 30 stocks with the lowest volatility scores are selected and weighted according to the index rules and the basket is reviewed at regular intervals.
The idea is not to avoid risk or to promise any particular outcome. This index still invests in equities, which means there will be corrections and drawdowns. The goal is more modest and practical: to focus on companies whose share prices have historically moved in a relatively steady manner.
The Nifty Alpha Low-Volatility 30 Index takes a slightly different approach. It draws stocks from both the Nifty 100 and the Nifty Midcap 50. Here each stock is given a score that combines two elements: alpha and low volatility. Alpha measures a stock’s ability to outperform the market. A stock with high alpha has historically delivered better returns than the broader index, often because of strong fundamentals, efficient management, market leadership, or favourable price trends. This index looks for stocks that have shown relatively stronger performance recently, but still with a preference for lower volatility. The top 30 stocks on this combined score are selected, with limits on how much weight a single stock can have.
For a retail investor, both indices are trying to tackle the same real-world challenge: how to stay in equities without being overwhelmed by daily noise. One focuses purely on the “smoothness” of past price moves in large caps. The other adds a layer that looks at recent strength as well, and reaches selectively into midcaps.
Focusing on Nifty Next 50
The Nifty Next 50 Index holds the 50 companies from the Nifty 100 that are not part of the Nifty 50. These are often seen as the “next line” of largecaps. The index is based on free-float market capitalisation with rules to keep it liquid and investable. It is diversified across sectors like financial services, capital goods, power, FMCG, autos, oil and gas, healthcare, consumer services and others.
Because of its position, Nifty Next 50 often contains companies that are still in a relatively faster growth phase or are expanding their presence in the economy. This can mean a more vivid reaction to economic conditions and corporate news. Over time, some of these companies may move up into the Nifty 50. For investors, the index offers a way to participate in this “pipeline” of emerging large caps in a single, rules-based basket.
When you put the three indices side by side, a useful picture emerges. Nifty100 Low Volatility 30 tries to give a calmer largecap experience by focusing on stocks that have been steadier. Nifty Alpha Low-Volatility 30 uses a similar low volatility idea but adds a performance tilt and includes selected midcaps. Nifty Next 50 provides broad exposure to the next rung of large caps and can bring in companies that are still building scale.
Different indices can play different roles. One investor may prefer a larger allocation to low-volatility indices for comfort, while another may want more of the Next 50 for potential growth, and a third may blend all three to balance stability and expansion.
Passive tools
Passive strategies based on indices like these do one thing very well. They follow a clear, transparent rulebook. The index, which forms the basis for ETFs and index funds, decides which stocks are included and how much weight each one carries. There is no day-to-day stock picking or market timing built into the approach.
For many investors this structure is helpful. It allows them to link their SIPs (in case of index funds) and lumpsum investments to a known index and then stay the course through market cycles.
Low volatility indices can help soften the impact of sharp swings, while Nifty Next 50 offers exposure to the next rung of large caps.
Together, they provide simple, rule-based ways to participate in equity markets, align investments with risk comfort and stay focused on long-term goals.
The writer is principal — investment strategy, ICICI Prudential AMC