Which Nifty Index Should You Select for Your SIP?

A deep dive into long-term SIP investing across NIFTY 50, NIFTY Next 50, NIFTY Midcap 150, and NIFTY Smallcap 250 indices—examining valuations, Q2 FY26 earnings, index stability, and the best ETFs with low tracking error and costs to help retail investors build smarter portfolios[EasyDNNnews:PaidContentStart]

A Deep Narrative on Valuation, Earnings and the Future of Passive Investing in India
The Indian equity market is entering a fascinating new phase, one where investors are no longer guided by broad bullishness alone but by a more nuanced interplay of valuations, earnings trajectories and sectoral shifts. For the past few years, the rally in Indian equities was largely driven by a narrow group of Large-Cap stocks, with Mid-Caps and Small-Caps showing bursts of strength whenever liquidity surged. But as FY26 unfolds, the dynamics have evolved. Investors are asking a deeper question: Which part of the market will lead the next decade of compounding?

This question has become especially relevant for retail investors who rely on SIPs as their primary method of long-term wealth creation. The debate usually revolves around four major indices: NIFTY 50, NIFTY Next 50, NIFTY Midcap 150 and NIFTY Smallcap 250. Funds dedicated to these indices saw major inflows through SIPs. Each represents a different slice of the economic engine, each has a distinct personality, and each responds differently to market cycles. What makes the discussion richer today is the backdrop of the Q2 FY26 earnings season, a quarter that did not deliver fireworks but offered clarity, stability and a strong sense that the worst of the earnings downgrade cycle may finally be behind us.

To navigate these choices, retail investors must understand the story unfolding beneath the surface: a story of valuations finding equilibrium, earnings climbing out of a correction, and leadership quietly shifting towards segments where structural earnings power remains intact. This is a story about where the next decade’s compounding will most likely emerge, and where retail investors should focus their SIPs to benefit from it.

Q2FY26: A Quarter that Redefined Expectations
The Q2 FY26 earnings season did not ignite fresh rallies, but it did something more meaningful. It created a sense of stability that had been missing for the last several quarters. Over the last two years, Indian markets saw earnings downgrades across sectors, driven by rising costs, uneven demand cycles, monetary tightening, fiscal prudence and margin compression. But in Q2 FY26, earnings downgrades for the BSE 500 reduced to just 0.5 per cent, a dramatic improvement from the 2–2.5 per cent cuts seen previously. The market needed reassurance, and this quarter delivered it.

Analysts now project 16 per cent EPS growth for H2 FY26 and 17–18 per cent growth for FY27, implying a more normalised earnings trajectory. But within these improving numbers, there are striking differences between segments:

■ Mid-caps emerged as the strongest pillar, delivering nearly 16 per cent median EPS growth, almost triple the NIFTY 50’s growth.
■ Small-caps showed resilience, with approximately 12 per cent operating profit growth, though accompanied by volatility and uneven sector performance.
■ Large-caps lagged, with only 5–6 per cent EPS growth (excluding OMCs and metals), reflecting cyclical softness in asset-heavy sectors.
■ The broader market (NIFTY 500) delivered 12.7 per cent operating profit growth, suggesting a healthier market beneath the surface.

These shifts in earnings momentum directly influence how investors should allocate to indices. A decade of SIP success is not built on returns alone. It depends on entering the market at reasonable valuations, riding earnings growth and minimising volatility. And this is where Q2 FY26 changed the narrative.

Valuations: The Invisible Hand that Shapes SIP Outcomes
One of the biggest risks for passive index investors is valuation excess. Starting a SIP is always beneficial, but starting a SIP when an index is extremely overvalued can delay compounding significantly. Index valuations as of November 20, 2025, offer clear signals:

A few truths become evident:
First, the NIFTY 50 is fairly valued.
With a P/E of about 22.8, it sits close to its long-term average. It will not deliver explosive returns from here, but its valuation does not indicate any looming risk of meaningful drawdowns either. The NIFTY 50 remains a stable anchor, ideal for investors prioritising consistency.

Second, the NIFTY Next 50 is attractively valued relative to its growth potential.
This is the most intriguing finding. Despite being home to fast-growing emerging giants across sectors, the index trades at a lower P/E than the NIFTY 50. Historically, whenever the NIFTY Next 50 trades at a discount to the NIFTY 50, its 5- and 10-year forward returns improve dramatically. This valuation gap, combined with accelerating earnings visibility, gives the NIFTY Next 50 a compelling risk-reward profile.

Third, mid-caps are expensive, but for a reason.
Trading above 33 times earnings, NIFTY Midcap 150 is undeniably pricey. But mid-cap companies have delivered the strongest earnings growth, improved balance sheets and leadership in manufacturing transitions. Expensive does not always mean avoidable, but it does mean SIPs are essential to mitigate risks.

Fourth, small-caps remain exuberant.
Small-caps at 29.5 times earnings reflect enthusiasm more than fundamentals. The Q2 FY26 numbers were encouraging but not strong enough to justify broad-based valuations. In small-caps, there is always a thin line between high-growth opportunity and speculative risk. Allocations must reflect caution.

When viewed together, valuations paint a clear investment landscape. The sweet spot for SIPs lies between the NIFTY 50 and NIFTY Next 50, with mid-caps offering strong potential but demanding disciplined SIP behaviour.

The Case for NIFTY 50: Stability in an Unsettled World
The Nifty 50 has long been the market’s default anchor, and FY26 reinforces this role. In Q2FY26, the index lagged on earnings due to weakness in metals, oil marketing, IT services and selective discretionary consumption. But beneath the slower growth lies a more resilient story: large Indian corporates maintain superior balance sheets, global supply chain positioning and pricing power.

In the Nifty 50, the variance of earnings is low. The leadership of BFSI, private Banks, IT services, consumer staples, telecom and diversified conglomerates creates a portfolio where surprises, positive or negative, are rare. For a long-term investor, this stability acts as a cushion during market shocks.

The current valuation of 22.8x is neither cheap nor stretched. It suggests an index that can deliver long-term nominal returns of 11–12 per cent with lower volatility. It may not deliver mid-caplike bursts of performance. However, it minimises the regret of being in the wrong part of the market during corrections.

For young SIP investors, the Nifty 50 is a hedge against behavioural mistakes. Emotions tend to be calmer when part of the portfolio is anchored in large, predictable companies.

The Case for NIFTY Next 50: India’s Most Potent Compounding Engine
The Nifty Next 50 often occupies the sweet spot between stability and high growth. It represents companies that are too large to be mid-caps but still growing fast enough to aspirationally join the Nifty 50. These include leading players in insurance, AMC businesses, building materials, digital platforms, premium consumer brands, industrial conglomerates and specialty chemicals.

“The Nifty Next 50 is the most attractive index for long-term SIPs today.”

In Q2FY26, the Next 50 category did not deliver earnings fireworks. However, the index benefits from something more important, structural tailwinds that extend across multiple sectors. These include rising formalisation, financialisation of savings, domestic manufacturing upgrades, premiumisation in consumption and expanding export footprints.

Valuation-wise, the index trades at a P/E of 20.28, cheaper than the Nifty 50 despite superior long-term earnings potential. Historically, this has been a powerful signal. Every time the valuation gap between the Nifty 50 and Nifty Next 50 narrows or turns favourable, the Next 50 outperforms meaningfully in the subsequent decade.

The index’s long-term track record, especially in SIPs, is exceptional. It does come with higher volatility. However, its multi-decade compounding power is unmatched among broad-based indices.

For investors seeking the strongest blend of value and growth, the NIFTY Next 50 is the most attractive index today.

The Case for NIFTY Midcap 150: A Growth Engine Running Hot
Mid-caps have been the heroes of the Indian market in recent years, driven by the manufacturing revival, government-led capex expansion, PLI schemes, global supply chain shifts and rising profitability across industrial and premium consumption sectors.

The earnings performance in Q2FY26 only confirmed their leadership, with nearly 16 per cent median EPS growth, the strongest across market caps. However, the index’s valuation at 33.45x signals caution. Mid-caps work brilliantly through SIPs, not lump sums. They reward investors willing to stay through volatility while capturing long-term growth.

For those with a decade-long horizon, mid-caps remain an essential part of wealth creation. However, allocations must be disciplined and balanced.

The Case for NIFTY Smallcap 250: The High-Risk Frontier
Small-caps are always the last segment to enter and the first to exit during market cycles. The Q2FY26 operating profit growth of approximately 12 per cent was impressive but not enough to justify near-30x earnings. Small-caps continue to carry high stock-specific risks, governance inconsistencies and valuation froth.

They can deliver extraordinary returns, but only when the entry valuation is favourable, and only through SIPs. For most retail investors, this segment should not exceed 10–15 per cent allocation.

Putting It All Together: A Rational Allocation Framework
A balanced SIP portfolio, based on valuation comfort, earnings visibility and volatility, is:
■ Nifty 50: 35–40 per cent
■ Nifty Next 50: 30–35 per cent
■ Nifty Midcap 150: 20–25 per cent
■ Nifty Smallcap 250: 5–10 per cent

This mix ensures stability, captures market expansion and balances risk across cycles.

The Best ETFs for SIPs (Low TER, Low Tracking Error, Healthy AUM)
From the available data, the ETFs that stand out for long-term SIPs are:

Over a full decade, SIP returns clearly demonstrate how different market segments reward patience across cycles. A ₹5,000 monthly SIP in the Nifty 50 TRI compounded at 14.91 per cent annually, turning ₹6.05 lakh into ₹13.14 lakh. Steady, dependable compounding that reflects the index’s low earnings volatility. The Nifty Next 50 TRI delivered a stronger 15.52 per cent CAGR, consistent with its history of outperforming the Nifty 50 whenever the valuation gap favours it.

The Midcap 150 delivered the strongest decade-long wealth creation, compounding at an impressive 20.68 per cent CAGR and growing the same SIP to ₹17.93 lakh. This aligns with mid-caps’ structural earnings leadership and balance-sheet strengthening over the past several years. Small caps, too, rewarded disciplined SIP investors with an 18.31 per cent CAGR. Attractive, though accompanied by sharper drawdowns during corrections.

Shorter 5-year and 3-year SIPs reinforce the same hierarchy: mid-caps leading, small-caps following, Next 50 outperforming large-caps, and the Nifty 50 offering stability. These long-term return patterns strengthen the case for a SIP allocation that balances stability with growth, while avoiding valuation-led traps in overheated pockets of the market.

Conclusion
After combining valuation signals, Q2FY26 earnings patterns and long-term historical performance, one conclusion becomes clear.

The Nifty Next 50 is the most attractive index for long-term SIPs today.
It offers growth without mid-cap froth, stability without large-cap sluggishness and valuations that remain favourable relative to its future potential. When paired with the Nifty 50 for stability, mid-caps for acceleration and small-caps for optionality, investors can build a diversified, durable and high-quality SIP portfolio that compounds steadily over years.

India’s next decade of wealth creation will not be led by speculative brilliance but by measured choices rooted in valuation, earnings clarity and disciplined SIP behaviour. And among all broad-based indices, it is the Nifty Next 50 that appears best positioned to ride this journey.

“A decade of SIP success is not built on returns alone — it is built on entering at reasonable valuations, riding earnings growth and minimising volatility.”

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