NSE launches new smart beta index to track performance of M-cap companies

NSE Indices Ltd on Thursday launched a new smart beta index, Nifty Midcap150 Quality 50 Index, which will track performance of mid-cap companies based on profitability, leverage and earnings growth variability.

The beta index includes top-50 companies from its parent Nifty Midcap 150 Index, selected based on their 'quality scores', NSE Indices, an NSE group company, said in a statement.

The 'quality score' for each company is determined based on return on equity, financial leverage and earning per share growth variability of each stock analysed during the past five financial years.

The weight of each stock in the index is based on a combination of stock's quality score and its free float market capitalisation.

The base date for the index is April 1, 2005, and base value is 1,000. The index composition is reconstituted on a semi-annual basis.

NSE Indices CEO Mukesh Agarwal said that globally, popularity of smart beta indices is picking up with assets under management of exchange-traded funds (ETFs) and exchange-traded products tracking such indices steadily increasing at a rate of more than 20 per cent a year during the past 5 years to reach USD 756 billion as on June 30, 2019.

"In India, with availability of various smart beta indices, ETFs based on such indices are also expected to pick up. The launch of Nifty Midcap150 Quality 50 index, along with the existing suite of Nifty smart beta indices reinforces NSE's commitment towards developing the passive fund management space," he added.

The index is expected to act as a benchmark for asset managers looking for a reliable metric that measures risk-return dynamics of quality-factor based mid-cap portfolios. The index is also expected to be reference index tracked by passive funds in the form of ETFs or index funds and by structured products.