This index has beaten India's stock market 90% of the time

Summary: We look at a thematic index that has beaten India’s stock market (represented by Nifty 500 TRI) more often than not in the long run. But there’s a catch because you may not be able to invest in it directly. That said, we offer more viable alternatives.

Meet the energy index. Over the last 10 years, the Nifty Energy TRI has delivered a whopping 18.8 per cent annualised return. To put that into perspective, if you had invested Rs 1 lakh a decade ago, your investment would have grown to nearly Rs 5.6 lakh today.

And India’s energy story is just heating up. According to the International Energy Agency, the country accounts for 10 per cent of the increase in global energy demand since 2000. Over that time, India’s own energy demand has risen by 60 per cent, and it’s still growing due to rapid urbanisation, industrialisation and economic growth. This is why investors have been paying special attention to the energy sector, a segment that not only powers India’s economy but also its stock market performance.

Beating the market consistently

To understand how consistent the energy sector’s returns have been, we looked at five-year daily rolling returns between October 2020 and October 2025, which smooth out the impact of short-term ups and downs.

Here’s what we found:

• Nifty Energy TRI (five-year rolling return): 19.7 per cent
• Nifty 500 TRI (five-year rolling return): 16.3 per cent

In fact, the Nifty Energy index outperformed the Nifty 500 TRI (which represents India’s stock market) 90 per cent of the time.

But there’s a catch

Unlike the Nifty 50 or Nifty Bank, there are no index funds or ETFs that mirror the Nifty Energy index yet. The only way to invest in the sector today is through actively managed energy funds — and there are only six of them in the country.

Of these six:

• Four funds don’t even have a three-year track record
• The oldest and most established is DSP Natural Resources and New Energy Fund

Now, here’s where it gets interesting. Since active funds are run by fund managers who pick and choose stocks themselves, they are under no compulsion to copy-paste the index’s portfolio. The DSP fund, for example, has beaten the Nifty 500 60 per cent of the time. That’s still good, but nowhere near the energy index’s near-perfect 90 per cent consistency.

High concentration can be highly risky

Another important thing to note is that the Nifty Energy Index is highly concentrated. Over 50 per cent of it is made up of Oil and Gas companies, mainly public sector giants like ONGC and Coal India. The remaining is roughly split between Power (24.88 per cent) and Capital Goods (24.74 per cent).

This means that when the oil sector or energy policy faces turbulence, the entire index can wobble.

And the risk doesn’t end there. The top five companies alone control nearly 40 per cent of the index:

• Reliance Industries – 10.01 per cent
• ONGC – 9.62 per cent
• Coal India – 9.16 per cent
• NTPC – 6.7 per cent
• Power Grid Corporation – 5.28 per cent

If even one of these companies underperforms, your entire investment could take a hit. That’s what’s known as concentration risk. Your fortunes depend too much on a few heavyweights.

Our take

Given the high concentration risk and limited investment options, most investors would be better off with diversified equity funds, such as flexi-cap or multi-cap funds.

These funds invest across different sectors and company sizes, giving you exposure to energy companies, but without putting all your eggs in one basket. In fact, many flexi-cap funds already have around 15 per cent exposure to energy and capital goods stocks like ONGC, NTPC and Power Grid.

Moreover, diversified equity funds have a longer history, have weathered multiple market cycles, and allow you to ride the energy boom without taking excessive risk.

That said, if you’re a high-risk investor and want to bet specifically on India’s energy future, go ahead, but keep your exposure limited to 5-10 per cent of your portfolio. Treat it as a satellite investment, not the core.

This article was originally published on October 08, 2025.