Nifty Financial Services Index

A few months before NSE launched a new Index - Nifty Financial Services Index, which tracks the performance of Indian financial services companies including banks, housing finance, insurance, NBFCs, other financial services companies etc. The index comprises a maximum of 20 stocks and is reconstituted semi-annually.

Constituents of the Nifty Financial Services Index:

Nifty Financial Services Index


The Nifty Financial Services Index has outperformed both the Nifty 50 Index and Nifty Bank since inception. Being a sector index, the Nifty Financial Services Index has been more volatile than the Nifty 50 Index, however being more diversified than Nifty Bank Index, it has been less volatile than the Nifty Bank Index over various time horizons.

Nifty Financial Services Index
image source NSEINDIA

Mirae Mutual Fund has launched an ETF for the above index which is currently open. 

Nifty Financial Services Index has exhibited better return to risk profile along with lower drawdown vs Nifty Bank Index. The above ETF is a relatively low-cost option to participate in Banking & Financial Services Sector, suitable for investors with higher risk appetite.

Nifty Microcap 250 Index Performance

Recently NSE India launched the Nifty Microcap 250 Index, which includes the top 250 companies beyond the Nifty 500 index constituents.

Performance of Nifty Microcap 250 Index vs Nifty Smallcap 250 Index:

Since inception, the Nifty Microcap 250 Index has outperformed the Nifty Smallcap 250 Index, returning 16.2% CAGR return against 15.5% CAGR for the Nifty Smallcap 250 Index.

NIFTY MICROCAP INDEX

But the key point is the volatility of the index. The Nifty Microcap 250 Index has been more volatile
than the Nifty Smallcap 250 Index over various time horizons.

Also, the index suffered maximum drawdown during the GFC (Global Financial Crisis) of 2008-09. The maximum drawdown for the Nifty Microcap 250 Index was -78.9% compared to 63.7% for the Nifty 500 Index.

There are over 1600 stocks listed in NSE compared to 900 in 2006. As the economy grows, the stock universe expands, as newer companies get listed. This is a good start from NSE in launching the Nifty Microcap 250 index, as it expands the coverage of the listed universe.

There are no Index fund or Active fund benchmarking to this index, as the index was launched recently.
Expect some AMC to launch a microcap fund based on this index.

Nifty Microcap 250 Index

NSE Indices launches a new Index - Nifty Microcap 250 Index which aims to track the performance of microcap stocks listed or permitted to trade on NSE. The index includes the top 250 companies beyond the Nifty 500 index constituents, selected based on their average full market capitalization. A stock’s weight is based on its free-float market capitalization.

The following picture represents the NSE Indices structure for Nifty 500 companies. 

Though NSE has over 1800 companies traded on their exchange, the top 500 companies represent about 94% of the free float market capitalization of the stocks. In other words, if you buy the Nifty 500 index or an ETF, you are buying the entire Indian stock market.




Now, the Nifty Microcap 250 Index represents the stocks from 501 to 750, which are microcap companies.

Check out the Sector representation  and top constituents of this index:


NIFTY MICROCAP 250

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How well the index has performed? The index has returned 14% CAGR over the last 5 years. 

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So, the next obvious question would be whether there will be an index fund and if there were one, is it worth investing?

Index investing and Index products have just started to get the traction, and we have a long way to go before we seen an Index fund or an ETF for this index. We may probably see some few AMCs launching active funds benchmarking this index. 

As the economy and market evolves we may have more funds and ETFs from passive space for small cap (though we have few small cap index funds) and micro cap indices. 

Nifty Alpha 50 Index

Factor-based investing, where stocks are selected based on style factors such as size, alpha, quality, value, momentum and low volatility, remains popular globally and continues to see rising interest in India as well.

NIFTY Alpha 50 is one of many strategy indices available in NSE and the index tracks the performance of 50 stocks with high Alphas in last one year. In order to make the 50 stocks index investible and replicable, criteria such as turnover and market capitalization are applied while selection of securities. 

 
Weights of securities in the index are assigned based on the alpha values. Security with highest alpha in the index gets highest weight.
 
Index Construction & Review Methodology:
Calculation Methodology:
Companies must rank within the top 300 companies by average free-float market capitalization.
The index is constructed using divisor methodology where weights are assigned based on alpha values of the securities. 
 
Index Review frequency:
The review of NIFTY Alpha 50 index is undertaken on quarterly basis using data of six month period ending last trading day of February, May, August and November.

Sector Representation:

NIFTY ALPHA 50

Top stocks by weightage:

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Performance of Nifty Alpha 50 Index:

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Nifty 50 vs Nifty Alpha 50 performance:

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image NSE India


As you can see, the Nifty Alpha 50 Index has outperformed Nifty 50 by a wide margin. 


Smart Beta based passive investment styles are increasingly being used by investors across the globe as building blocks in their asset allocation models in their eternal quest to generate market beating returns.

Recently Kotak AMC to come out with an ETF for this index, as it has filed papers with SEBI for the same.