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Everything to you need to know about Nifty Midcap Select Index 

The The Securities and Exchange Board of India (SEBI) recently gave its nod to the National Stock Exchange (NSE) to launch futures and options contracts on the Nifty Midcap Select Index.

Trading of these derivatives commenced on January 24, 2022. The launch marks a significant milestone in the development of the derivatives segment in India as futures and options contracts were previously available only on four Indian indices: Nifty 50, Sensex, Nifty Bank and Nifty Financial Services.

The launch of these derivative instruments on the Nifty Midcap Select Index will create an alternative for investors to hedge their risk as they manage their portfolios, Vikram Limaye, MD and CEO of NSE, said.

“The current availability of index derivatives on the exchange is largely focused on either the large-cap stocks or sector-specific stocks. The midcap stocks account for around 17% of market capitalisation,” he said.

The Nifty Midcap Select Index consists of 25 handpicked stocks across 13 sectors from the Nifty Midcap 150 index. The stocks have been shortlisted based on several criteria – average daily turnover, market capitalisation and their availability for F&O trading.

The weightage of the selected stocks has been determined using the free-float market capitalisation. (Number of equity shares in circulation multiplied by the share price.)

Here are the assigned weights of the top 10 constituent stocks:

(Table 1: Source - NSE Factsheet)

All the stocks that are part of the index are individually available for trading in the derivatives segment as well. The derivatives trading system will involve weekly as well as monthly contracts that will expire on Tuesdays. The lot size of a single trade is set at 75 shares. Should any Tuesday be a trading holiday, the contract expiry date will be on the previous trading day.

“The exchange will offer futures and options with the trading cycle of 7 weekly expiration contracts (excluding the monthly expiration contract) and three serial monthly expiration contracts,” the NSE said in a statement.

All futures and options will have seven weekly cycles (excluding the monthly expiry) and a trading cycle of three consecutive months, i.e., near-month, mid-month and far-month.

When the near-month futures contract expires, a new one is created on the next trading day.

Here’s a look at all the sectors involved in the curation of stocks for the Nifty Midcap Select Index along with their respective weights:

Table 2: Source - NSE Factsheet

It is worth noting that midcap stocks displayed a daily average turnover of INR 15,220 crore in 2021 – a 63% rise over the previous year.

The correlation between the Nifty 50 and the Nifty Midcap Select Index is 0.76, i.e., low, but the price beta (volatility) is high at 1.10. Over the last one year, the index has generated 38.73% gains with 19.4% in annualised returns over the last five years (both ending December 2021).

The base value of the index has been set at 1000, and the base date is October 3, 2005. Based on the movement of the 25 constituting stocks, the Nifty Midcap Select Index chart looks like this:

Figure 1: Source - NSE Factsheet

Here are some fundamentals of the Nifty Midcap Select Index:

P/E: 26.8

P/B: 3.28

Dividend Yield: 0.91

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