The Nifty Index comprises of 50 stocks representing a variety of the country’s economic sectors. This allows it to effectively mirror overall economic activity in India, meaning that when the economy is doing well Nifty will rise and when it is performing poorly its value will drop. This makes trading Nifty Futures far more sensible than single stock futures, due to various factors:
On the other hand, trading Nifty futures offers an advantage due to its diversified portfolio of 50 stocks. This reduces “unsystematic risk” since movement of the Index does not depend completely on one stock, even though heavyweights may influence it occasionally. We will get into the details of hedging later which explains these terms more thoroughly.
7. Nifty futures are far more stable compared to individual stock futures. To provide an example, the Nifty futures has an average annual volatility of about 16-17%, whereas an individual stock such as Infosys can usually have a volatility of 30% or above.