An index for every palate

Most investors stop short with a cursory look at the Sensex and the Nifty while tracking stock movements. Few go beyond a few steps to look at the various sector indices such as the pharma, IT or bank index. But the platter of indices available on stocks traded on the BSE and the NSE has much more.

There are indices that track the performance of specific themes such as consumption or services. Some indices also show how various strategies such as growth, value or momentum are performing.

These thematic and strategy indices can be put to better use if mutual funds launch index funds or exchange traded funds based on them. But passive investing has not caught on in India, so it will take some time before funds are launched on all these indices.

But it still pays to know about these indices. Tracking their returns will tell you how various themes or strategies are performing, thus helping you select the right stock or fund, depending on your investment horizon.

Strategising for the future If you are a high-risk taker, and prefer to play the momentum game, keep an eye on the Nifty Alpha 50 index. This index is constructed with stocks that are highly liquid and have large market-caps.

The securities within the selected universe with the highest alpha (excess return of the stock relative to the return on the benchmark) are assigned the highest weight.

A glance at the index constituents will give you a fair idea of the stocks that are racing ahead in recent months. For instance, towards the end of March, 2016, Jubilant Life Sciences, Tata Elxsi and Rajesh Exports had the highest weights in this index.

However, this momentum strategy is not doing too well of late, with one-year return on the index at -4.6 per cent. But over the long term, betting on momentum seems to be paying off with five-year annualised return at a healthier 18 per cent.

At the other end of the spectrum is the Nifty Low Volatility 50 index for those who do not want too much excitement. Here, index constituents are assigned weights based on volatility values — lower the volatility, higher the weight.

The volatility is arrived at by looking at the standard deviation of daily price returns over the past year. The top weighted stocks here are the stodgy large-caps such as HDFC Bank, TCS and Hero Motocorp.

The return on this index has been surprisingly solid in the last one year; down just 1.1 per cent. Five-year return is however more sedate at 12 per cent, indicating that this strategy will work in down-cycles to contain losses but might not give you spectacular returns in rallies.

The Nifty Quality 30 is another interesting index that long-term investors can track. It includes companies that have a strong business and have shown a sustained improvement in margins and earnings. Indicators such as ROE, debt-to-equity and growth in profits for the last three years are used for computing the index value.

The top weighted stocks in this index are TCS (10.4 per cent weight), Infosys (10.39 per cent) and ITC (10.3 per cent). The index is however down -7.4 per cent in the year to March 2016. It is also quite expensive with PE ratio of 28.

The Nifty Growth Sector 15 is among the best performing indices in the recent past with one-year return of 0.03 per cent and five-year return of 17.7 per cent.

The construction of this index is slightly more complicated. The high growth sectors are first identified by comparing the PE and price-to-book ratios of the sectors with the Nifty and picking sectors that are more expensive. Stocks with derivatives available on them are then chosen from these sectors. This list is further filtered based on EPS growth.

Out of these, the top 15 stocks are then chosen. The top large-cap names such as TCS, Infosys, ITC and HUL make the cut here.

Themes galore If you are considering stacking up stocks from the consumption or services sector in your portfolio, you can verify your hunch by looking at some of the thematic indices that are available on the two exchanges.

For instance, if you want to see how the consumption theme has performed over the last one year, you can look at the Nifty Indian Consumption index that tracks the stocks in consumer non-durables, healthcare, auto, telecom services, pharma, hotels, media and entertainment. This is one of the best performing themes over the last one year with the index down just -0.11 per cent in the last fiscal year. Five-year returns have also been good at around 14.25 per cent.

Nifty Services Sector Index that captures the movement of companies in sectors such as IT, banks and telecom is however not doing too well. One-year return on this index was a dismal -9.25 while the five-year return was 6.8 per cent.

There are a handful of indices from the S&P BSE index basket such as the S&P Greenex and the S&P BSE Carbonex that will help you contribute your bit towards a cleaner environment.

Stocks in this index are chosen based on their initiatives to contain carbon emissions and their carbon policies. Those who are interested in Shariah-compliant stocks can track the S&P BSE 500 Shariah index.

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