The Nifty Fifty was a group of US companies, including IBM, Coca-Cola and General Electric, that became popular among investor during the 1970s because of their perceived superior earnings growth.
At that time, investors began to look not only for income from dividends, but for companies that looked likely to grow their earnings rapidly as well. A focus on yield as the primary metric for valuing companies gave way to an increasing emphasis on the price/earnings (p/e) ratios.
Investors enthusiastically bought shares in the nifty fifty and their p/e ratios climbed steeply. Their prices collapsed in the 1974/5 bear market, after which investors became more focused on smaller companies for growth.
In modern times, the term Nifty Fifty describes the large Indian companies listed on the National Stock Exchange. A formal index has been launched to track their price movements.
Nifty Fifty in the news
The Indian Nifty Fifty aside, most commentators agree that there is no strict equivalent to the Nifty Fifty for global investors. However, in January 2013, many stocks analysts wondered if the massive international defensive stocks might be a modern day version of the Nifty Fifty and might be similarly overvalued. However, research by Jeremy Siegel, a professor at the Wharton School of Business, found that not all Nifty Fifty stocks turned out to be "dogs" in the long run. Xerox’s performance warranted a price/earnings ratio of 18 rather than 46. But Coca-Cola was so successful it would have been worth paying 92 times its 1972 earnings. But as FT columnist Merryn Somerset Webb warned in September 2012, investors only need to look at the example of the Nifty Fifty to realise that you can extrapolate away, but nothing lasts forever.