Nifty Alpha Low-Volatility 30

What is NIFTY Alpha Low-Volatility 30?

NIFTY Alpha Low-Volatility 30 is a strategy index on the National Stock Exchange (NSE) that is designed to capture the performance of a portfolio of stocks that are selected based on a 50:50 combination of alpha and low volatility. It is a diversified index of 30 stocks selected from the NIFTY 100 and NIFTY Midcap 50 indexes. These stocks span 14 sectors of the economy, with almost 31% representation given to FMCG, followed by IT, Healthcare, Power, and Chemicals. These top 5 sectors together account for more than half of the index.  

This NIFTY Alpha Low-Volatility 30 index was launched on July 10, 2017, with the base date as April 1, 2005, and the base value at 1000. The NIFTY Alpha Low-Volatility share price since inception has breached the levels of 16,000 at ~29x P/E multiples. It is reconstituted on a semi-annual basis.

The NIFTY Alpha Low-Volatility 30 index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. It is governed by a three-tier structure that comprises the BOD of NSE Indices, the Index Advisory Committee and the Index Maintenance Sub-Committee.

This index is useful for launching index funds, ETFs, and structured products. It is also suitable for benchmarking fund portfolios that seek to take exposure to multiple factors instead of focusing on single factors that are given to cyclicality.

How is NIFTY Alpha Low-Volatility 30 Calculated? How Are Stocks Selected for Inclusion in NIFTY Alpha Low-Volatility 30?

The NIFTY Alpha Low-Volatility 30 share price is computed by factor-weighting its 30 stocks based on an average percentile score on a real-time basis. This score is a 50:50 combination of:

1.  Jensen’s Alpha from CAPM based on past 1-year prices, which gives an Alpha Z score
2. Inverse of the standard deviation of daily price returns, which gives a Low Vol Z score

The weights are based on weighted average factor level Z score and are capped at 5% or 5x the weight of the stock in the index based on float-adjusted market capitalisation.

To be inserted in the NIFTY Alpha Low-Volatility 30 index, the companies must fulfil the following eligibility criteria:

1. It will be listed on the National Stock Exchange.
2. It will form a part of the NIFTY 100 and NIFTY Midcap 50 indices.
3. It will have a minimum listing history of 1 year.
4. Will include the securities which are tradeable on NSE’s derivatives segment. 
5. Will include the securities that have undergone a scheme of arrangement, such as spin-offs, capital restructuring, etc., if they have traded for at least 12 calendar months before the cut-off date for index reconstitution.
6. Will compulsorily include the top 10 stocks ranked on the basis of average percentile score.
7. Will exclude a stock if its rank falls below 50 based on average percentile score.

The index value is calculated as follows – 

    Index value = (Modified Index Market Capitalization / Index Divisor) * 1000

Where,

Modified Index Market Capitalization = Index Shares modified as per weight * Price

Base Index Divisor is considered to have a value of INR 1 billion

The NIFTY Alpha Low-Volatility 30 index is reviewed semi-annually based on six months of data in the months of June and December each year. Ad-hoc rebalancing may be undertaken in instances of suspension, delisting or scheme of arrangement. The Alpha Low-Volatility index is also screened, on a quarterly basis, for compliance with SEBI’s portfolio concentration norms for ETFs/Index Funds since 2019.