The banking sector is an important part of the Indian stock markets.
Even within the Nifty 50, banks and financial services make up almost 35%, the highest weightage of any sector.
This raises a simple question:
If banks are such a dominant force in the index, how much of the Nifty’s long-term returns actually come from them?
And if you removed banking stocks from the equation, how would it affect the returns?
The Experiment
We decided to keep the experiment simple.
First, we took the current list of Nifty 50 companies and looked at how they performed over the last 10 years. We assumed an investor put Rs 1 lakh equally across all the stocks and stayed invested throughout the period.
For this experiment we took the current stocks in the Nifty 50, not the index. We did not use the actual Nifty 50 weightages for this experiment. Every stock was given equal weight in the portfolio so that we could purely measure the impact of removing an entire sector.
Note: Because we are looking at 10 year data, we had to exclude 5 current Nifty 50 companies (like Jio Financial and SBI Life) because they were not listed in 2016. So, our investor divided their Rs 1 Lakh equally across the 45 stocks that were actually available to buy).
This became our baseline portfolio.
Next, we removed all banking stocks from this portfolio and repeated the exact same exercise with the remaining companies. In total, 8 banking stocks were excluded.
To make the comparison more interesting, we also ran the same experiment after putting the banks back in, but removing IT stocks from the portfolio.
Results
Here is what the data showed:
For the baseline Nifty 50 portfolio, the investor puts Rs 2,222.22 into each of the 45 stocks. Over the 10 years, the portfolio grew nearly 6x.
When the banking and finance stocks were removed, the investor put Rs 2,702.7 into each of the 37 remaining stocks.
The baseline portfolio did beat the portfolio without banking stocks, but not significantly. The difference came down to roughly Rs 14,000. It proves that even without the financial stocks, the rest of the market easily carried the load.
Finally, Rs 2,500 was invested equally in the 40 non-IT stocks.
Here is where the significant difference arises. Without the IT giants, the portfolio didn’t drop. It went up. It made Rs 6,16,334. That is almost Rs 35,000 more than the baseline portfolio, generated simply by avoiding the IT sector.
Conclusion
Why did this happen?
The Nifty 50’s sectoral weightage naturally draws attention to banking and IT.
Because they occupy such a massive portion of the index, there is a common perception that these two sectors solely dictate the broader market’s performance.
However, this experiment highlights the underlying diversity of the market.
The numbers show that over the last 10 years, excluding the financials reduced the returns, but not by a great level. This is because sectors like auto, metals, and FMCG contributed enough growth to keep the overall returns nearly identical.
Furthermore, despite their large market capitalization and market prominence, the data shows that large-cap IT stocks actually had a moderating effect on this specific portfolio’s overall CAGR. It reduced the returns for this portfolio.
This drag is largely due to the fact that while IT had a bull run in 2020-2021, the sector went through periods of sluggish growth and corrections in the subsequent years.
This does not mean banking or IT stocks did not give good returns at all.
The experiment ultimately shows that wealth creation within the Nifty 50 has been more diversified than the headlines make it seem. Even after removing major sectors like banking or IT, the remaining companies were still able to generate substantial long-term returns.
Limitations of the experiment
Survivourship Bias: The study only included companies that are part of the index today. Some weaker companies that were in the Nifty 50 in 2016 but later got removed were not included.
Equal-weight portfolio: Every stock was given the same weight, unlike the actual Nifty 50 where larger companies have a bigger impact on returns.
Specific 10-year period: The results are based only on the 2016–2026 period. Different time periods could lead to different outcomes.
No rebalancing: The portfolio was treated as a one-time investment with no changes made over the 10 years.