With advancements in technology, the world has become one big marketplace. In order to generate interest among Foreign Institutional Investors (FIIs), the indices are being traded on different exchanges to cater for the ever increasing customer base. With the increasing popularity of Indian markets, the demand for the Nifty 50 index is also on the rise. Similar to how the Dow Jones and the S&P index trade in India, the Indian Nifty also trades on the Singapore exchange by the name of SGX Nifty.
The Nifty futures trade for a total duration of six and half hours in India. If there is an important world event which can affect the Nifty, the market participants have to wait till the next day market opening to take any action. In some instances, it might mean a large gap up or gap down, which can lead to large losses to many market participants who are leveraged. In order to protect their positions, large FIIs and hedge funds trade in the SGX Nifty futures.
Though, the SGX Nifty futures track the movements of the Nifty 50 index of India, it has a few advantages for large traders.
The SGX Nifty starts trading two and half hours prior to the market opening in India. There are many occasions when world events cause a large move in the Nifty during the opening. The Nifty is known to mirror the SGX Nifty many times during the opening, but as soon as the markets open, the local factors take over and guide the movement of the Nifty.
Many times the SGX points to a deep negative movement for the Nifty, but after opening in the negative, the market quickly recovers and closes with large gains for the day. So, just following the SGX nifty and taking positions based on it can prove to be a wrong trade to take.
As the main underlying index the Nifty 50 affects the movement of the SGX Nifty and not otherwise. The main volume in nifty futures is generated in India compared to the Singapore exchanges. The nifty futures move in accordance to the sentiment prevailing in India irrespective of the sentiment in the rest of Asia.
For an Indian trader, though, SGX Nifty futures give an indication about the likely opening direction of the Nifty 50, it doesn’t indicate the direction for the whole day. The use of SGX Nifty ceases to exist once the Indian markets open. Traders should use it as a guide rather than an indication of what is to come when the markets open for trading in the NSE.
Though the Nifty 50 index is an appropriate representation of the Indian Stock Market, there are many stocks which are of lower free float capitalization but are high-quality stocks. Different stock investing philosophies calls for trading in stocks of different capitalizations. A few investors are interested in the Nifty 50 stocks, others want to identify midcap stocks which have lower capitalization, but a bright future ahead of them. These stocks grow at a fast pace and a few are able to make their place in the Nifty 50 in a few years’ time.
In order to cater for such varied requirements of the investors, the National Stock Exchange has divided the stocks into different broad market indices. A few important indices are explained in this article. You can find the details of the Nifty here
The next 50 set of most liquid stocks are included in the Nifty Next 50 index. These stocks have a liquidity selection criteria which is lower than that of the main Nifty 50 index. You can find the 100 most liquid stocks in these two indices. A stock can’t be represented in both the indices at the same time. This index constitutes about 12.02% of the total free float market capitalization, and the total traded value is about 16.19% of the stocks listed with the NSE. The stocks in this index represent nine different sectors.
It is difficult to buy and manage all the stocks of the Nifty 50 and the Nifty Next 50. For ease of trading and duplicating the index, a total of 15 liquid stocks are chosen which have a minimum turnover ratio and meet the standards of the free float market capitalization. All the stocks included in this index have derivatives trading on them. The maximum weightage of any stock is capped at 15%. Eight different sectors are represented in this index.
This is similar to the Nifty 100 Liquid 15 Index, the only difference is that here the companies included should have a free float market capitalization of between Rs. 2,000 cr to Rs. 6,000 cr. If a company’s free float capital increases more than Rs. 12,000 cr or decreases below Rs. 2,000 cr, the company is removed from this index.
This is a new index, which includes stocks listed in the Nifty 50 and the Nifty Next 50 index. If there is any change in either indices, it gets automatically reflected in the Nifty 100 index. This represents 78.57% of the total free market cap of the stocks listed on the NSE.
Out of a list of 300 eligible companies selected on the basis of free float market capitalization and aggregate turnover, the top 200 with the maximum free float market capitalization are selected. This index represents 87.45% of the total free float market capitalization of the stocks listed on the NSE
This index is similar to the one above and has 500 stocks in it. This index represents 95.77% of the free float market capitalization of the stocks listed with the NSE.
This represents the midcap sector of the stock market. The selection criteria is slightly complicated.
This index tracks all the midcap stocks which have derivatives trading against them. Only stocks listed in the Futures and Options segment qualify to be included in this index. Stocks with a free float market capitalization of Rs. 1000 cr to Rs 5000 cr are eligible to be included in this index.
This index consists of companies which though are small are showing promise to grow in the future. The first two steps in the selection procedure for the stocks to be included in this index is similar to the Nifty Midcap 100 index. After that
This index indicates the expected volatility of the markets in the near-term. The calculation is done using the computation methodology of the Chicago Board Options Exchange (CBOE) but with certain changes to suit the Indian stock market. The volatility is a figure in percentage (%) which gives an expectation of the fluctuation of the Nifty 50 index in the coming 30 days.
The National Stock Exchange has taken enough efforts to safeguard the Indian investors and to make it easier for them to search comparatively good stocks to invest. Depending on the investment approach of the individual, one can choose the index to narrow down their list of stocks to study. Newcomers should stick to choosing stocks from the Nifty 100 index rather than indulging in stocks of a questionable repute.