NSE to launch derivatives on mid-capitalized stocks index

11 Jan 2022 , 01:07 PM

National Stock Exchange of India has received approval from market regulator Securities Exchange Board of India (SEBI) to launch derivatives on the Nifty Midcap Select Index. The Exchange will launch the index derivatives from January 24, 2022. 

Nifty Midcap Select index aims to track the performance of a focused portfolio of 25 stocks within the Nifty Midcap 150 index. All the index constituent stocks are individually available in derivatives. The weight of the stocks is based on the free-float market capitalization methodology. 

Exchange will offer futures and options with the trading cycle of 7 weekly expiration contracts (excluding the monthly expiration contract) and 3 serial monthly expiration contracts. Index options will be European style with strike interval of 50 and strike scheme of 30—1—30 (OTM-ATM-ITM). 

Commenting on the proposed launch, Mr. Vikram Limaye, MD & CEO, 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 capitalization. The launch of derivatives on Nifty Midcap Select index will provide participants an additional hedging tool to manage their portfolio risk effectively”.

The midcap segment has come into focus during the recent market rally with improved participation levels from across investor classes and consequent liquidity. The Nifty Midcap Select Index has delivered returns of 38.73% in the last 1 year and 19.04% annualized returns in the last 5 years ending December 2021. The assets under management of equity oriented mutual funds schemes categorized solely as midcap schemes saw a jump of 82% from Rs 83,839 crores ending November 2019 to Rs 1,52,893 crores ending November 2021.

In the secondary market on NSE, the daily average turnover of stocks classified as midcap stocks as on June 2021 has witnessed a year-on-year increase of 61% from Rs 5,798 crores in CY 2019 to Rs 9,331 crores in CY2020 and further increase of 63% to Rs 15,220 crores in CY2021. In terms of investor participation, 3 out of 5 investors transacting on NSE’s equity segment have transacted in these midcap stocks in CY 2021. Institutional investors — domestic and foreign – accounted for 15.7% of turnover in these stocks on NSE’s equity segment in CY2021.

In the equity derivatives segment, the daily average turnover of stocks classified as midcap stocks (as on June 2021) witnessed year-on-year increase of 83% from Rs 10,640 crores in CY 2020 to Rs 19,513 crores in CY2021.

The Nifty Midcap Select index portfolio has a comparatively lower correlation of 0.76 with Nifty 50 Index and high beta of 1.10. The volatility of Nifty Midcap Select Index was 22.45% in the last 1 year as compared to 15.62% for the Nifty 50 index and 22.99% for the Nifty Bank Index.