Nifty India Digital Index

What is NIFTY India Digital?

NIFTY India Digital is a thematic index on the National Stock Exchange (NSE) which captures the performance of a portfolio of stocks that represent a digital theme on a real-time basis. It is constituted of 30 stocks, that are selected on the basis of free-float market capitalization. The NIFTY India Digital Index stocks span 5 sectors: IT, Consumer Services, Telecom, Financial Services, and Capital Goods.

Some of the basic industries eligible for inclusion in the NIFTY Digital index are Computers - Software & Consulting, Computers Hardware & Equipment, Digital Entertainment, E-Learning, E-Retail/ E-Commerce, Fintech, Industrial Electronics, Internet & Catalogue Retail, IT Enabled Services, Other Telecom Services, Software Products, Telecom - Equipment & Accessories, Telecom - Cellular & Fixed line services, and Tour & Travel Related Services.  

This NIFTY Digital index was launched on December 14, 2021, with the base date as April 1, 2005, and the base value at 1000. The NIFTY India Digital share price since inception has breached the levels of 5,000 at ~85x P/E multiples. It is reconstituted semi-annually and caps individual stocks at 7.5% weightage and sectors at 50%.

The NIFTY India Digital index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. The India Digital index is governed by a three-tier structure comprising the BOD of NSE Indices, the Index Advisory Committee, and the Index Maintenance Sub-Committee.

NIFTY India Digital has a variant in the form of the NIFTY India Digital Total Returns Index. This index is suitable for benchmarking fund portfolios by asset managers, and to be used as a reference index for tracking ETFs, index funds, and other structured investment products.

How is NIFTY India Digital calculated? How are stocks selected for inclusion in NIFTY India Digital?

The NIFTY India Digital share price is computed by weighting its 30 stocks on the basis of periodically capped 6-month average free-float market capitalization relative to a base market capitalization value on a real-time basis. The stock weights are determined based on their float-adjusted market capitalization value.

The securities need to fulfil the following criteria for eligibility:

1. Should be listed on the National Stock Exchange.
2. Should form a part of NIFTY 500.
3. Should include stocks that are a part of the ‘basic industries’ category as classified by the AMFI Industry. These industries are liable to change as the market dynamics change.
4. Should have a maximum of 30 stocks.
5. If the number of eligible stocks falls below 10, then in such cases, the deficit number of stocks shall be selected from the universe of top 800 ranked stocks based on both average daily turnover and average daily full market capitalization data of the previous six months from NIFTY 500’s universe.
6. Should be a part of the digital sector.
7. New securities will be included if their float-adjusted market capitalization is at least 1.5 times the index’s smallest constituent’s free-float market capitalization.
8. Should have a trading frequency of at least 90% in the past six months.
9. Must have a listing history of minimum six months.
10. A recently listed company (IPO) can be included if it meets the above eligibility criteria for a period of three months instead of six months.
11. Should adhere to the cap of 7.5% in case of a single stock at the time of rebalancing.
12. Should adhere to the cap of 50% in case of sector weights at the time of rebalancing.

The index value is calculated as follows – 

    Index Value = Current Index Market Capitalization/ (Base free-float Market Capitalization * Base Index Value)

Where,

Current Index Market Capitalization = Shares o/s * IWF * Capping factor * Price 

IWF (Investible Weight Factors) = 1 as it is based on market capitalization method 

The NIFTY India Digital index is rebalanced semi-annually based on six months of data, with the cutoff date being January 31 and July 31 of each year. The replacement of stocks in NIFTY Digital (if any) is effective from the last trading day of March and September.