NSE set to launch derivative contracts on Nifty Next 50 from Wednesday

National Stock Exchange (NSE) is set to introduce derivative contracts on Nifty Next 50 index from Wednesday.

This came following an approval received from markets regulator Securities and Exchange Board of India (Sebi).

The Nifty Next 50 index represents 50 companies from Nifty 100 after excluding the Nifty 50 companies.

Under the derivative contract, the exchange would offer three serial monthly index futures and index options contract cycles. The cash-settled derivatives contracts would expire on the last Friday of the expiry month.

The introduction of derivatives on the Nifty Next 50 index would complement the existing index derivatives product suite. The Nifty Next 50 index would represent the space between the Nifty 50 index comprising the top large & liquid stocks and the Nifty Midcap Select index comprising the top large & liquid mid-capitalised stocks, Sriram Krishnan, Chief Business Development Officer at NSE, stated last week.

As of March 2024, the Nifty Next 50 index had top sector representation from the financial services sector with 23.76 per cent weight followed by the capital goods sector with 11.91 per cent and consumer services with 11.57 per cent. The index was introduced on January 1, 1997.

The market capitalisation of Nifty Next 50 index constituents stood at Rs 70 trillion, representing about 18 per cent of the total market capital of the stocks listed on NSE as on March 29, 2024. The aggregate daily average turnover of index constituents stood at Rs 9,560 crore accounting for around 12 per cent of cash market turnover in FY24.

Derivatives in market parlance refer to financial contracts between two or more parties and derive their value from an underlying asset or benchmark.

Broadly, there are two types of derivative contracts - futures and options. A futures contract means a legally binding agreement to buy or sell the underlying security on a future date, while an options contract gives the buyer or holder of the contract the right to buy or sell the underlying asset at a predetermined price within or at the end of a specified period.