In a significant move set to broaden the derivatives market, the National Stock Exchange of India (NSE) has announced the addition of derivatives on the Nifty Next 50 Index (NIFTYNXT50), starting from April 24. Following approval from the Securities and Exchange Board of India (SEBI), these financial instruments are expected to provide investors with new avenues for trading and hedging.
With NSE being recognized as the world’s leading derivatives exchange in 2023 by the volume of contracts traded, this expansion marks a continuation of its innovative streak in the financial markets. The exchange will introduce three serial monthly index futures and index options contract cycles, all of which will be cash-settled and will expire on the last Friday of the respective expiry month.
The Nifty Next 50 Index paints a picture of market dynamics beyond the premier Nifty 50, representing the subsequent 50 companies from the Nifty 100. As of March 2024, this index showcases the vibrancy of diverse sectors where the financial services sector takes the lead with a 23.76% weightage, followed by the capital goods sector at 11.91%, and the consumer services sector closely behind at 11.57%.
These figures are a testament to the robust nature of the index since its inception on January 1, 1997, which embarked with a base value of 1000 as of the base date, November 3, 1996. Fast forward to late March 2024, and the market capitalization of the Nifty Next 50 Index constituents stands tall at Rs 70 trillion, accounting for approximately 18% of the total market capitalization of all companies listed on NSE.
When it comes to liquidity, the index’s constituents did not disappoint, with an impressive aggregate daily average turnover of Rs 9,560 crores. This performance represents roughly 12% of the cash market turnover during the financial year 2023-24, hinting at the active participation by the investing community.
One cannot overlook the Nifty Next 50 Index’s alignment with other segments of the Indian financial market, showcasing a significant 71% correlation and a Beta value of 0.95 with the Nifty 50 Index. Furthermore, the index also recorded a 90% correlation with the more broad-based Nifty Midcap 150 index in the financial year 2024, confirming its sensitivity and relevance to market movements.
This introduction is aligned with NSE’s progressive approach to expanding its derivatives portfolio. The exchange previously launched derivatives on the Nifty Midcap Select Index (MIDCPNIFTY) in January 2022 and offered derivatives on the Nifty Financial Services index (FINNIFTY) in January 2020. Alongside, NSE has been actively developing its commodity derivatives segment, offering market participants an extensive array of products to diversify their investment and hedging strategies.
The decision to introduce these new derivatives coincides with recent local and global events that have affected market sentiments, including the fourth consecutive session of selling in the Indian stock market and the controversial Google layoffs related to employee protests over a government contract with Israel. These underline the ever-growing need for sophisticated financial tools that can help investors navigate the complexities of global economics and corporate governance.
In the realm of derivatives markets, the inclusion of the Nifty Next 50 Index instruments is poised to offer investors a more granular and diversified approach to portfolio management. It enables them to spread their risks beyond the blue-chip companies and delve into the potentials of growing enterprises that may be poised for greater successes in the future.
Overall, the NSE’s decision reflects its commitment to market innovation and investor empowerment. As we approach April 24, all eyes will be on the performance of these new derivatives, which are set to invigorate the Indian financial scene with broader index-based trading and hedging opportunities.
