NSE Plans to Launch Derivatives on Mid-Cap Stocks from Jan 2022

A Closer Look

The Midcap Select Index from Nifty focuses on tracking a portfolio of 25 stocks in Nifty Midcap’s 150 index and how they perform. NSE also mentioned in its statement that every stock that an index constitutes is also available in derivatives. Additionally, their weight depends on the method of free-float market capitalization.

Additionally, NSE will also issue futures and options along with trading cycles. Here, it will be a seven weekly expiration contract, not including the monthly expiration system. It will also include three per-month expiration contracts.

A senior official of NSE pointed out that current index derivatives are primarily focused on large-cap stocks or sector-specific ones. At the same time, mid-cap stocks hold almost 17% of market capitalization. With this launch of derivatives in Nifty’s Midcap Select Index, investors will have an extra hedging tool to manage the risk in their portfolio better.

The mid-cap segment has recently garnered huge popularity based on increased participation levels from different investor classes. Moreover, the Nifty Midcap Select Index has generated a return of 39% in the previous year, and the annual return here is 19% in the last five years ending in December 2021.

What Are Mid-cap Stocks?

The stock market has a classification of companies based on their market capitalization, and mid-cap companies are the ones with a market cap of more than Rs. 5,000 crores and less than Rs. 20,000 crores. Thus, mid-cap stocks are the ones from these organizations.

Here are some notable features of mid-cap stocks –

1. Higher Diversity

Since the range of these stocks lies from small caps to large caps, it offers greater diversity in terms of associated risk and returns. Here, some firms have just become mid-cap, offering higher returns but more volatile. Alternatively, organizations that have graduated or are on the verge extend more stability and entail lower investment risks.

2. Attractive Growth Potential

The potential of mid-cap stocks is hard to narrow down, as the spectrum is broad, as stated before. Nonetheless, typically these stocks are regarded as the ones with higher potential. This includes productivity, profitability, and capturing market share.

Such companies can become an overnight success in a bullish market, generating sky-high returns.

3. Better Liquidity

In terms of liquidity, mid-cap stocks are also on a middle ground. Companies operating in this market space are well-known but are not household names. Therefore, it will not be difficult for one to find a suitor for these stocks. Hence, they offer improved liquidity.

Bottom Line

To summarise, NSE’s move and its implications will be understood over the course of time. Since this facility is already available with large-cap stocks, there is no reason for it not working in this segment as well. However, the higher volatility of mid-cap stocks and how it will affect this move will be an interesting watch.

For more details and updated news on India’s Stock Market, stay subscribed to the Angel One Blogs.

Source: Financial Express

Frequently Asked Questions

1. What is the market capitalization of small-cap companies?

The market capitalization of small-cap companies is less than Rs. 5,000 crores.

2. What is the market capitalization of large-cap companies?

The market capitalization of large-cap companies is higher than Rs. 20,000 crores.

3. What are equity derivatives?

Equity derivatives are a section of derivatives that derives its value from one or more underlying equity securities. Futures and Options are the most common examples of this class.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.