What is better as an Indian investor in Nasdaq 100 or Nifty 50?

In a world growing more intricate, the importance of financial management has shifted from a specialized skill to an essential requirement – applicable not only to finance professionals but also to individuals across various fields. 

It holds particularly true for medical professionals who face the challenge of navigating the intricate realm of personal finance amidst their demanding careers.

 Recently, a surprising survey unveiled that 68% of medical professionals encounter difficulties in managing their finances, with more than half of the participants expressing a decrease in confidence regarding their financial situation compared to the previous year. 

The urgency is evident, emphasizing the need for a comprehensive grasp of effective financial tools, including smart investments, to secure a prosperous future.

Why Should Medical Professionals Invest in Stocks? 

Due to the demanding nature of their profession and extensive education and training commitments, medical professionals often enter their careers later than many others. This delay and significant student loan debts often hinder their ability to engage in financial planning and investing at an early stage. 

Moreover, the demanding nature of their work further limits the time available for effective financial management and investment planning, potentially resulting in missed opportunities for wealth creation. 

However, investment plays a crucial role in accumulating wealth and ensuring financial security. It provides an additional source of income beyond regular earnings and, when executed correctly and consistently, can significantly contribute to wealth growth.

One promising avenue for investment is the stock market. Individuals become partial company owners by investing in shares or equities, sharing in its successes and profits. Although investing in stocks comes with inherent risks, it can be profitable when approached with wisdom and prudence.

Among the numerous investment indexes available, the Nifty 50 (India) and the Nasdaq 100 (US) are particularly relevant to medical professionals. 

These widely recognized exchanges offer diverse investment opportunities, each with advantages and potential drawbacks.

What are the Differences? 

Understanding the distinctions between various indexes is crucial to effectively navigate stock investments. 

Despite both being appealing options for investors, the Nasdaq 100 and Nifty 50 differ significantly in their composition and market focus. 

Investing in the Nasdaq means placing bets on a few of the largest technology companies in the world, including Meta (Facebook), Alphabet (Google), and Apple. These tech giants collectively account for nearly 60% of the Nasdaq index. Additionally, the top 10% of companies in the Nasdaq 100 carry a weightage of 55%, highlighting the significant influence exerted by the index’s leading firms. 

On the other hand, investing in the Nifty primarily involves taking a stake in India’s thriving financial services sector, representing approximately 40% of the index. Furthermore, the top 10% of companies in the Nifty 50 have a weightage of only 39%, indicating a more evenly distributed influence across its constituent companies.

Investing in the Nasdaq allows individuals to tap into the growth potential of technology firms within a relatively mature market while investing in the Nifty enables them to capitalize on the burgeoning Indian market. 

With India’s expanding population, rising earnings potential, and increasing purchasing power, the Nifty can deliver high growth, potentially even outperforming global markets in nominal terms (currency effect not accounted for). In terms of market capitalization, the entire Indian stock market hovers around $1.9 trillion. In contrast, the two largest companies on the Nasdaq stock exchange possess market capitalizations of $2.9 trillion and $2.5 trillion, respectively. This stark contrast underscores the different scales and opportunities these two indexes offer.

The Performance of Each Market 

Contrary to popular belief, India’s Nifty 50 has proven to be a more successful wealth generator than numerous global indices, including the United States Nasdaq. 

Since the beginning of the millennium, the Nifty 50 has experienced an impressive surge of 1,493%, surpassing the performance of many global counterparts. 

In comparison, the Nasdaq index has grown by approximately 700% during the same period. However, it is essential to note that Indian investors’ dollar returns have been somewhat constrained due to the depreciation of the Indian rupee by about 87% against the dollar since 2000. Furthermore, India’s historically higher inflation rate, compared to the United States, further diminishes the actual returns.

When evaluating returns in terms of rupees (i.e., converting Nasdaq’s dollar returns into rupees), the scales tilt in favour of Nasdaq. Over the past decade, Nasdaq has achieved a return of 17.7% (23% in rupee terms), surpassing Nifty’s 13.8% return (rupee terms). Despite Nasdaq’s advantage in terms of headline figures, it is crucial to consider the element of volatility. Nasdaq has exhibited significantly higher volatility than Nifty’s small-cap and micro-cap indices over the past five years. It implies that while Nasdaq can provide attractive returns, it is more suitable for investors with an appetite for the steep peaks and valleys of market fluctuations.

Which is Right for You? 

When it comes to crafting a rewarding investment strategy, the decision between the Nifty 50 and the Nasdaq 100 ultimately relies on individual investment goals and risk tolerance. If the objective is to gain exposure to a wide range of sectors within the rapidly expanding Indian market, the Nifty 50 may be an excellent choice.

Alternatively, if you possess a strong interest in the technology industry and feel comfortable navigating the risks associated with a top-heavy index, the Nasdaq 100 could be more suitable. The presence of influential tech giants in the Nasdaq 100 has the potential to yield substantial returns, provided you are prepared to withstand the inherent volatility associated with this sector.

However, before arriving at a decision, consulting with an investment advisor is crucial. Seek personalized advice based on your specific circumstances and financial objectives, empowering you to make an informed choice between these two lucrative markets.