The Nifty Fifty was a collection of 50 stocks with a large capitalization that traded on the New York Stock Exchange that were most sought-after by the institutional investor during the 1960s and the 1970s. It was the top 50 stocks, which were similar to blue-chip stocks that we have today — is believed to have helped propel the American economy into its peak in the 1970s. These companies were typically characterized by constant growth in earnings and large percentage of earnings.
Understanding the Nifty Fifty
It is believed that the Nifty 50 stocks earned their fame during those market bulls in the 1960s and in the early 1970s. They were referred to for their “one-decision” stocks due to the fact that investors were told by certain individuals like University of Pennsylvania professor Jeremy Siegel that they could purchase and hold for a lifetime. However, that wasn’t always the way it was. Although no comprehensive list is available for those who make up the Nifty 50, the most notable examples of certain stocks include General Electric ( GE), Coca-Cola ( Ko) and IBM ( IBM). But, a portion of this list was comprised of businesses that have faced difficulties over the past decade, including Xerox as well as Polaroid.
Nifty Fifty Stocks as well as Price-to-Earnings (P/E) Ratios
In the past, nifty-fifty stocks were highly regarded partly due to their high price-to-earnings , or P/E ratios. P/E ratios are a measure of the value of a share’s market value (price) against its earning-per-share. Earnings refer to the net profit of a company that the CEO and the investor relations team announce every quarter during the earnings conference call. The P/E ratio identifies the amount that an investor needs to put into a company in order to earn one dollar from the company’s earnings. This is why it’s often known as”the cost multiple.
In the current market, high P/E ratios like those of many tech companies (i.e. Tesla’s ( TSLA) forward P/E of 1,076) could signal volatility and instability. If the company’s value is much over its actual earnings, this may indicate that investors over-hyped the company. If the business fails to earn a profit investors who bought the stock at a very high price might see their stakes decrease if the market picks up the company’s price and it falls accordingly.
Nifty Fifty and today’s Blue Chip Stocks
The current blue chip stocks in a variety of ways are similar to those of the Nifty Fifty shares of previous years. Blue-chip stocks are widely recognized well-established and financially sound firms like Coca-Cola, Disney, PepsiCo Wal-Mart, General Electric, IBM, and McDonald’s. They are the most dominant in their respective fields These names have a connection with the Nifty Fifty. Blue-chip stocks are highly trusted names and have weathered several economic downturns throughout the decades.
Investors who have a low risk profile (i.e. more conservative or perhaps older investors who are approaching retirement and seeking stability) tend to invest their funds in blue-chip companies. They are excellent choices to preserve capital. Regular dividends will provide income for investors who do not receive a salary. It will also shield the portfolio from inflation.