Can BSE 1000 Index Fund offer all-weather portfolio to beat Nifty? Pratik Oswal explains

Time of India

13-06-2025

When most investors think passive investing, they think
Nifty
50. The bold ones might venture into Nifty 500. But what if the real opportunity lies in the 500 companies they're missing?
Pratik Oswal
, Chief of Passive Business at
Motilal Oswal Asset Management Company
, believes India's investment story is incomplete without accessing its broadest equity universe. The firm's latest offering, the
BSE 1000 Index
Fund, covers 94% of India's listed market capitalization—a stark contrast to the Nifty 50's focus on just the top 50 companies.
"The BSE 1000 has outperformed Nifty 50 in 10 of the last 17 years," Oswal reveals, attributing this edge to something most investors overlook: the untapped potential of microcaps and mid-caps that make up the broader market ecosystem.
Edited excerpts from a chat:
The
BSE 1000 Index Fund is Motilal Oswal AMC's latest passive offering. What was the core idea behind launching this product now?
India's equity markets have evolved significantly — from being dominated by a few companies to a vibrant ecosystem of over a thousand listed businesses across sectors and sizes. The BSE 1000 Index Fund was launched to help investors participate in India's full growth story — not just the top 50 or 100 companies.
With broader indices correcting slightly and valuations moving closer to long-term averages, we believe this is a strategic moment to introduce a product that combines stability, diversification, and long-term potential in a single, passive format.
Investors are very familiar with indices like Nifty 50 and Nifty 500. Why did you choose the BSE 1000 — and what unique advantage does it offer over these traditional benchmarks?
The BSE 1000 is India's broadest equity index, covering ~94% of the listed market cap. While indices like Nifty 50 or Nifty 500 focus on depth, the BSE 1000 brings both breadth and depth.
Key advantages over traditional indices:
Wider market representation — includes the top 1000 companies vs. 500 or fewer.
Inclusion of Microcaps – Early-stage, high-growth companies not part of Nifty 500.
Sectoral diversity — covers all 22 sectors, while Nifty 50 covers around 15.
Lower concentration risk — more balanced exposure to both old and new economy themes.
Performance edge — the index has outperformed Nifty 50 in 10 of the last 17 years and delivered better SIP outcomes over the long term.
The BSE 1000 covers nearly 94% of India's listed market cap. Does this wide representation help reduce concentration risk, which is often a concern with passive strategies? At the same time, isn't it over-diversification?
Absolutely, the broad coverage is a strength, not a drawback. In fact, the BSE 1000 is designed to reduce single-stock and sector-level risks, which are more pronounced in narrower indices.
And rather than 'over-diversification,' this is actually smart diversification. The index provides meaningful exposure to segments like midcaps and microcaps — which are driving growth — without overexposing investors to their volatility. In fact, the BSE 1000 shows lower volatility over the last 15 years than a highly concentrated index like Nifty 50. The result is a more balanced, all-weather
portfolio
.
The index spans large, mid, small, and micro caps. In an environment where mid and smallcaps are trading at elevated valuations, how does this fund manage risk without active selection?
Being a passive fund, we don't actively select stocks — but the index structure itself helps manage risk through diversification.
Large caps provide the base stability.
Mid and smallcaps contribute alpha during market upcycles.
Microcaps, while having higher beta, unlock hidden growth opportunities
Importantly, valuations in the broader market have cooled slightly in recent months, and the current P/E levels of the BSE 1000 are near long-term medians — indicating fair valuations across the spectrum.
Microcaps are a significant part of the index — and typically under-researched. What would you say to investors worried about liquidity or volatility in that segment?
It's true that microcaps carry higher volatility — but they make up only around 5% of the total index.
Interestingly, over the past 5 years:
Microcaps' share in total market cap has doubled.
Average market cap of microcap companies has grown sixfold.
Their average daily trading volumes have surged 13x — reflecting rising investor participation, mobile trading, and index inclusion (e.g., BSE Next 500).
Yet, 87% of these companies have 5 or fewer analysts tracking them, meaning there's real potential for discovery.
For investors, this means measured exposure to high-growth companies — without needing to pick individual names.
You've highlighted the long-term performance edge of the BSE 1000 over the
Nifty 50. What's driving this outperformance — is it purely the breadth or something more structural?
It's both. Breadth plays a role, but the structural edge comes from:
Participating in early-stage growth from mid and microcap companies.
Better sector rotation and thematic representation — like manufacturing, digital, and financial inclusion.
Lower concentration — avoiding overexposure to a few dominant names.
Over time, this combination of more sectors, more companies, and more growth engines leads to better compounding — as reflected in its historical performance vs. Nifty 50.
Passive investing has gained huge traction in India over the last few years. How do you see this trend evolving, especially in a market like ours that's still heavily actively managed?
India is still early in its passive journey. But we're seeing a shift:
More investors are embracing cost-efficiency and transparency.
Many active funds are struggling to consistently outperform broad indices — especially in large caps.
New themes like factor investing and broad-based indices (like BSE 1000) are making passive products more relevant.
We believe passive AUM in India could double in the next 3–4 years, driven by both retail and institutional adoption.
Given the current market phase — soft corrections, pockets of froth — do you think it's the right time for investors to consider broad-based passive products?
Yes — in fact, this is precisely the time to look at broad-based passive investing.
Markets have corrected ~5–10% from peaks.
Valuations are near long-term averages.
Volatility has increased — and passive strategies reduce decision-making stress.
Broad based funds reflect the economy better during uncertain times.
For long-term investors, timing the market is less important than time in the market — and broad-based index funds like BSE 1000 are built to ride through cycles while capturing India's growth.
Lastly, what's the tracking error you're targeting for this fund, and how will you ensure efficient execution given the wide base of 1000 stocks?
We have a strong track record of managing passive funds efficiently, even those with complex or deep indices:
Our Nifty 500 Fund maintains a tracking error of just 8 bps.
Our Nifty Microcap 250 Fund — despite lower liquidity — is managed with just 60 bps tracking error.
For the BSE 1000 Index Fund, we expect tracking error to remain broadly in line with our Nifty 500 Fund — with a marginal increase owing to the inclusion of microcaps.
This is possible due to experienced trading and quant teams, strong counterparty relationships for execution and rigorous internal tracking systems. We believe scale, systems, and specialization are key to maintaining low tracking error — even in a 1000-stock fund.