A large section of investors, even now, are aware only of the BSE Sensex 30 and the NSE Nifty 50 as benchmark indices representing the overall market performance. While the former has a sentimental value, being from Asia’s oldest bourse, the latter gained popularity due to trading interest on its futures.
But gone are the days when a stock index is used only to represent the mood of the market. In recent years, indices have become direct investment tools, with index funds and index derivatives riding on them.
Index funds are mutual funds that are designed to track the returns of a market index. Index derivatives allow investors to hedge their risk exposure to market. According to the NSE, these applications are now a multi-trillion dollar industry worldwide, and are linked to market indices. In all, BSE has 66 equity indices, while the count is 69 on the NSE.
And if one wants to make investment based on market-cap, both exchanges provide a gamut of indices to choose from. The BSE has indices such as BSE Midcap, Smallcap, 150 Midcap, 250 Smallcap, 250 Large MidCap, 400 MidSmall Cap, BSE Allcap, BSE Largecap, SmallCap Select, MidCap Select, Large MidCap, BSE MidSmallCap and BSE 250 LargeMidCap 65:35 index.
On the NSE, NiftyMidcap 50, Midcap 100, Smallcap100, Nifty Midcap Liquid 15, Nifty Midcap 150, Nifty Smallcap 250, Nifty MidSmallcap 400, Nifty LargeMidcap 250 and Nifty Smallcap 50 are some of the indices based on market-cap.
The NSE also has separate indices on three corporate houses: Tata (25 companies), Aditya Birla (eight companies) and Mahindra group (seven companies). The shares of these group firms are benchmarked to Nifty Tata group, Nifty Tata group 25 per cent cap, Nifty Aditya Birla group and Nifty Mahindra group. IISL, index provider for the NSE, undertakes development and maintenance of customised indices for clients as well as offers consultancy services for developing indices.
The NSE also offers Nifty High Alpha 50 and Nifty High Beta 50 indices for investors who wish to make risk-based investments.
Recently, the NSE has launched Nifty Equity Savings Index, which captures the performance of a portfolio having exposure to equity, equity arbitrage and debt instruments. This index is a total return index capturing price return and dividend/coupon income.
Nifty Quality index is based on return on equity, financial leverage (debt-to-equity ratio) and earnings (EPS) growth variability analysed during the previous five years.
The BSE equity indices have seven categories — market-cap/broad, sector & industry, thematic, strategy, sustainability and volatility. Including the BSE Sensex and BSE 500, there are 21 indices that one can track currently on the BSE under the market-cap/broad category. Similarly, 19 sectoral indices such as Bank, PSU Bank, Basic Materials, Consumer Discretionary, Energy, Healthcare, Finance, Metal, Power and Realty cater to various industries.
For those interested in strategies, BSE has the Momentum index, Low Volatility index, Quality index, Enhanced Value index, Dividend Stability index, BSE-IPO, SME-IPO, Dollex 30, Dollex 100 and Dollex 200 that can come in handy.
Why so many indices?
For investors keen to make investments based on environmental and ethical considerations, BSE Sustainability index has three indices, namely, BSE 100 ESG Index, Carbonex and Greenex. The NSE too has similar kinds of indices.
Recently, a survey by Index Industry Association, a global organisation of index administrators, revealed that there are nearly 33 lakh stock market indices, which are about 70 times that of the available listed stocks. According to a World Bank study, there are 43,192 listed firms (in 2017) and India tops the list with 5,615 public companies.
This indicates that global fund managers and investors want more choices and India is not left behind on that count. Apart from traditional exchange-traded funds, fund houses are eyeing out-of-the-box themes to generate returns such as ICICI Prudential’s Nifty Low Vol 30 ETF.