National Stock Exchange tweaks methodology for inclusion of companies

Lays more emphasis on 'free-float' mcap as selection criteria for small and midcap index

The National Stock Exchange (NSE) has revised the methodology for inclusion of companies in the Nifty Midcap 50 and Nifty Smallcap 50 indices, laying more focus on free-float market capitalisation. 

For Nifty Midcap 50, index provider NSE Indices will now place select 50 stocks based on higher six-month average free float market capitalisation instead of top 50 stocks based on full market capitalisation. In this index, the preference is also given to stocks in the futures and derivatives segment.

The stock selection will be from the stocks included in the Nifty Midcap 150 index.

For the Nifty Smallcap 50 index, at present, top 50 companies were selected based on average daily turnover of top 100 companies (based on full market cap). With the revised methodology, 50 stocks will be selected based on a higher 6-month average free-float market cap.

These changes are important as many passive mutual funds are benchmarked on them. There are three passive schemes with cumulative assets under management (AUM) of Rs 480 crore tracking the Nifty Smallcap 50 fund while two such schemes track Nifty Midcap 50 with an AUM of Rs 260 crore.

For thematic indices, NSE said that companies that are available for trading in the F&O segment will be given preference.

It has also introduced the number of days a stock hits circuit filter as one of the selection criteria for sectoral indices.