Every technical reason favours the NIFTY 50.
Diversification NIFTY 50 is a more diversified index, accurately reflecting overall market conditions. The reward-to-risk ratio of NIFTY 50 is higher than other leading indices, making it a more attractive portfolio hence offering similar returns, but at lesser risk.
Liquidity. Over one year (October 1998 to October 1999), the trading volume on NSE for NIFTY stocks was 3.5 trillion, giving a liquidity ratio of 105%. The 'liquidity ratio' is defined as trading volume over one year divided by market capitalisation today.
Hedging effectiveness. The basic risk of NIFTY futures will be lower owing to the superior liquidity of NIFTY stocks and of NSE. NIFTY has higher correlations with typical portfolios in India as compared to any other index. These two factors imply that hedging using NIFTY futures will be superior.
Governance. NIFTY is managed by a professional team at IISL. There is a three-tier governance structure comprising the board of directors of IISL, the Index Policy Committee, and the Index Maintenance Subcommittee. NIFTY 50 has fully articulated and professionally implemented rules governing index revision, corporate actions, etc. These rules are carefully thought out, under Indian conditions, to dovetail with operational problems of index funds and index arbitrageurs. NIFTY 50 is relatively free of manipulation, for three reasons: (a) the index levels are calculated from a highly liquid exchange with superior surveillance procedures (b)NIFTY 50 has a large market capitalisation so the consequence (upon the index) of a given move in an individual stock price is smaller and (c)NIFTY 50 calculation intrinsically requires liquidity in proportion to market capitalisation, thus avoiding weak links which a manipulator can attack. Users of the NIFTY 50 benefit from the research that is possible owing to the long time-series available: both NIFTY 50 and NIFTY 50 Total Returns Index series are observed from July 1990 onwards.NIFTY 50 is backed by solid economic research.