New NSE Indices: Are they worth investing?

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To facilitate capturing overall behaviour of equity markets, stock market indices are formed.

There are thousands of companies having their shares listed in one or more stock exchanges. Tracking each share would not only be difficult, but would not give any clear picture about the performances of the markets.

To facilitate capturing overall behaviour of equity markets, stock market indices are formed by selecting a group of stocks that are representative of the whole market or a specified sector or segment of the market.

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The National Stock Exchange (NSE) has launched Nifty India Manufacturing Index on August 16, 2021 and Nifty India Select 7 Government Bond Index on August 20, 2021.

Calculated with reference to a base period and a base index value, an Index provides information about the price movements of a financial product, like – stocks, commodities, T-bills or other forms of investments.

“The indices run over sectors, themes, strategy, fixed income and broad markets,” said Vamsi Krishna, Head – Product and Marketing, Axis Securities.

Talking about the National Stock Exchange (NSE) indices, Krishna said, “There are over 55 indices that NSE provides to track the markets,” adding – Retail Investors can benefit from these indices in three ways,
1. Through trading the index on exchange
2. Buying Index Mutual Funds
3. Mimic the Index stocks in personal portfolio

“These Indices give a clear view on which theme/sector is promising or under-performing, and investors can certainly benefit from investing in these themes, suiting their view and risk appetite,” said Krishna.

“However, we can trade only in three index futures, as of now, on the exchange: Nifty, Banknifty and FINNIFTY. One can also invest in Index Mutual Funds like Axis Nifty 100, Motilal Midcap 150, Kotak Next 50 and more, that give a broader range than trading,” he added.

Timing the market vs staying invested: What matured investors prefer?

Giving his views on NSE indices, Amit Gupta – Vice President & Fund Manager – PMS, ICICI Securities said, “NSE has launched various sectoral, thematic and strategy indices. Going forward, the investment themes will be more broad based as the economy picks up. These indices can be helpful in streamlining the investment mindset. The various government initiatives can be captured through these indices for the investment perspective of 3-5 years.”

“The multi-factor approach imbibed in strategy indices is also quite interesting. These are smart beta strategies where more customisation can also be done by various investment desks. The multi factor approach helps to generate alpha over traditional indices,” he added.

“In ICICI Securities PMS, for example, Active Index portfolio is also used, which has given a return of 12.45 per cent in the last three months Vs benchmark return of 9.27 per cent. It is rebalanced every 6 months and includes the top ranking stocks based on two factors – higher alpha and lower volatility,” informed Krishna.

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