The Nifty 50 is not fifty equal companies. It is weighted by free-float market capitalisation, which means the largest names move the index far more than the smallest ones.

The heavyweights

Reliance Industries, HDFC Bank, ICICI Bank, Infosys and TCS between them account for a large share of the index by weight. When banking and IT move together, the Nifty moves with them regardless of what the other forty-five are doing.

This is why the index can close flat on a day when most stocks rose. Breadth and direction are different questions.

Sector concentration

Financial services is the single largest sector weight in the index by some margin. A rate decision from the RBI therefore lands harder on the Nifty than a comparable decision would on a more evenly spread index.

IT is the next largest, and it earns most of its revenue abroad. A weaker rupee tends to help IT earnings and a stronger one tends to hurt them — which is why the index sometimes rises on days the currency falls.

What this means for you

If you hold a Nifty 50 index fund or ETF such as NIFTYBEES, you already own this concentration. That is not a flaw; it reflects the market. But it does mean an index fund is less diversified than fifty holdings sounds.

If you also hold Reliance, HDFC Bank and Infosys directly alongside the index fund, you own them twice. Worth checking before you add more.

Investments in securities are subject to market risk. Read all scheme-related documents carefully before investing.