Is Nasdaq better than Nifty?

While both Nifty and Nasdaq are home to the largest companies in their respective countries, we are making an unfair comparison.

Here's why: As of June 14, 2023, the market capitalisation of all Nifty-50 companies was close to $1.8 trillion. By contrast, the two biggest companies on NASDAQ - Apple and Microsoft - have market capitalisation of $2.9 and $2.5 trillion each. Clearly, Nasdaq is in a league of its own.

But what if you want to invest in either of them (a question that was originally asked by one of our readers who didn't mention their name)? Does the Nasdaq tower over Nifty here too?

Different investment perspective
Nasdaq and Nifty are worlds apart in terms of how they are built. With Nasdaq, you are betting on the biggest technology companies in the world, such as Meta (Facebook), Alphabet (Google) and Apple. These cutting-edge tech companies make up nearly 60 per cent of the index (see below).

On the other hand, with Nifty, you'd be largely investing in the financial services companies of India. They comprise nearly 40 per cent of the index (see below). (By the way, Nasdaq includes only non-financial companies).

In addition, Nasdaq is home to 100 companies, while the Nifty has 50.

Furthermore, the US index is top-heavy, with the top 10 per cent of its companies having a 55 per cent weightage, while Nifty's top 10 per cent companies constitute 39 per cent of the index.

Nasdaq 100 vs Nifty 50: Returns perspective
Let's come down to hard numbers.

In the last ten years, Nasdaq's 17.7 per cent (23 per cent in rupee terms) clearly overshadows Nifty's 13.8 per cent (rupee terms).

While the headline numbers tilt in Nasdaq's favour, they can be notoriously volatile. In fact, in the last five years, Nasdaq has been more volatile than Nifty's small-cap and micro-cap indices, making them an investment opportunity for only those who can stomach steep highs and lows.

Moreover, if you look at the 2003-2013 period, Nifty delivered 20.3 per cent as against Nasdaq's 9.2 per cent, suggesting their 20-year returns are more-or-less equal.

Our take
Both indices can make you rich. And both offer diversity - Nasdaq gives you exposure to the world's leading technology companies, while Nifty is more partial to India's financial services.

So, it makes sense to invest in both, instead of trying to figure out which will give you more returns in the long run.

To know the best funds that invest in Nasdaq and Nifty, we'd suggest you head over to our Analysts' Choice section.

Suggested read: Is it greener on the other side of an index?

This article was originally published on June 20, 2023.