Nifty Midcap Select

Nifty Midcap Select

Nifty Midcap Select is a key stock market index composed of highly liquid shares of a select group of mid-cap companies. Futures and option contracts are also regularly traded with this index as the underlying asset. Follow the Nifty Midcap Select to keep track of some of the top mid-cap companies in India.

What is the Nifty Midcap Select Index?

The Nifty Midcap Select Index is a broad-based index on the National Stock Exchange (NSE) capturing the performance of 25 liquid stocks selected from the Nifty Midcap 150 index. The stocks are included in the index on the basis of market capitalisation, average daily turnover and the availability of derivative contracts on them. The index was launched on September 14, 2021, with the base date as October 3, 2005, and the base value at 1000. 

These stocks span 13 sectors of the economy, including Capital Goods, Financial Services, Automobile and auto Components, IT, Consumer Services, Consumer Durables, Power, Healthcare, Textiles, Media, Entertainment and Publication, Services, Oil, Gas and Consumable Fuels, and Realty.

The Nifty Midcap Select index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. The Midcap index is governed by a three-tier structure that comprises the Board of Directors of NSE Indices, the Index Advisory Committee, and the Index Maintenance Sub-Committee.

Nifty Midcap Select has a variant in the form of the Nifty Midcap Select Total Returns Index. This index is useful for launching index funds, ETFs, and structured products, as well as for benchmarking fund portfolios. Futures and options have also been introduced on the index, which can be used for hedging.

How is the Nifty Midcap Select Index Value Calculated?

The Nifty Midcap Select index value is computed by weighting its 25 stocks on the basis of free-float market capitalisation relative to a base market capitalisation value on a real-time basis. The index value is calculated using the formula below:

Index Value = (Current Index Free Float Market Capitalisation / Base Free Float Market Capitalisation of Index) * Base Index Value

Where,

Index Free Float Market Capitalisation = Current shares outstanding * IWF * Capping factor * Price

[IWF = Investible Weight Factor i.e. the portion of the outstanding shares that is open to trading for the public on the exchange

Capping factor = 1 in case of uncapped indices]

The Nifty Midcap Select index is reviewed semi-annually based on 6 months’ data in the months of January and July each year. The index stocks are weighted as per their free-float market capitalisation value. The replacement of stocks (if any) is implemented from the last trading day of March and September. Additional reconstitution may be undertaken if the stock is no longer available for F&O trading and if any corporate actions are initiated.

How are Stocks Selected for Inclusion in Nifty Midcap Select?

The following steps are undertaken for stock selection:

Step 1: All the companies in the Nifty Midcap 150 that have active F&O traded on them will be counted as a part of the ‘Eligible Universe’.

Step 2: Out of the eligible universe, the top 5 stocks based on their 6-month average of full market capitalisation are selected. These 5 stocks will be known as the ‘Ranked Universe’.

Step 3: The remaining stocks from the Nifty Midcap 150 index are then re-ranked based on their 6-month average full market capitalisation and 6-month average daily turnover.

Step 4: A ‘Reranked Universe’ is then formulated by taking the top 50 stocks selected in Step 3. These 50 stocks are then rearranged based on their 6-month average free-floating market capitalisation. The top 20 stocks are selected from this Reranked Universe.

Selection Criteria for Scrips in the Nifty Midcap Select Index

To be included in the Nifty Midcap Select index, the stocks must fulfill the following selection criteria:

1. They will form a part of the Nifty Midcap 150 index and be available for derivatives trading on the NSE F&O segment.
2. Will compulsorily include the top 10 stocks from the ‘Reranked Universe’ based on the 6-month average full market capitalisation.
3. Will include new securities from the ‘Reranked Universe’ if their 6-month average float-adjusted market capitalisation is at least 1.5x of the 6-month average float-adjusted market capitalisation of the smallest constituent in the index.
4. Will exclude securities that do not form a part of the ‘Reranked Universe’.
5. Will exclude securities if their rank in the ‘Reranked Universe’ falls below 30 based on a 6-month average full market capitalisation.
6. In case the number of eligible stocks falls below 20 in the ‘Reranked Universe’, then the shortfall will be made up by expanding the ‘Re-ranked Universe’ to the top 60 stocks, and then if needed, the top 70 stocks and so on, as per average market capitalisation and average daily turnover.

What are the Benefits of Investing in the Nifty Midcap Select?

The Nifty Midcap Select Index represents a very special group of midcap stocks that offer the following advantages:

1. Since these midcap stocks have F&O trading on them, they are likely to be fairly liquid in the cash segment as well. Therefore, holding these stocks will pose less liquidity risk compared to other stocks.
2. Each of these stocks has derivatives trading on them. Therefore, a trader has the opportunity to look through the trends in the stock’s derivative prices in order to make a more informed decision on whether to buy or sell the stock.
3. You can use futures and options to combine with a regular stock trading or investing strategy in order to hedge your risks related to trading or investing in these stocks.
4. Nifty Midcap Select options have their expiries on Wednesdays. On the other hand, Nifty Financial Services options already have their expiries on Tuesdays while the ones on Nifty 50 and Nifty Bank have their expiries on Thursdays. This means options traders will have an additional opportunity to deploy their capital to trade in index-based options for an additional day in the week.
5. As per an NSE circular, no transaction charges will be levied on F&O contracts on Nifty Midcap Select until September 30, 2023.

The Nifty Midcap Select Index is a relatively new index, but it has already become an important benchmark for the mid-cap segment of the Indian stock market. The index is expected to continue to grow in the coming years, as more and more investors look for exposure to this dynamic segment of the market.

Note: Effective from the trade date August 17, 2023, the expiry day will be changed from the existing Wednesday to the new Monday expiry.

How To Invest in Nifty Midcap Select Stocks?

You can invest in the Nifty Midcap Select Index in the following ways:

1. You can invest in an ETF or an index fund that tracks the index, i.e. it invests in a similar pattern in the same set of stocks as the index. This will allow you to directly benefit from the growth in the index’s value.
2. You can trade futures and options that have the Nifty Midcap Select Index as the underlying asset. The changes in the value of the index will determine the outcome of the future or the option.
3. You can make a list of all the stocks that come under the Nifty Midcap Select Index and buy those stocks in the same proportion as it is, in the index.

History of the Nifty Midcap Select Index

The Nifty Midcap Select index was launched on September 14th, 2021, with the base date as October 3, 2005, and the base value at 1000. In the 12 months preceding 31st July 2023, the Nifty Midcap Select has seen around 22% growth.

Factors Affecting the Nifty Midcap Select Index

1. Cost of capital: The Nifty Midcap Select Index is sensitive to changes in the cost of capital. When interest rates are low, it is cheaper for businesses to borrow money, which can lead to increased investment and economic growth. This can benefit the mid-cap companies, which may be seen as riskier than large-cap companies.
2. Government support: Government policies can also have a significant impact on the Nifty Midcap Select Index. For example, policies that support businesses, such as tax breaks and grants, can help the companies grow and compete with larger rivals.
3. Foreign investment: The flow of foreign investment into India can also affect the Nifty Midcap Select Index. When foreign investors buy Indian stocks, it can put upward pressure on prices, which can benefit small-cap companies.
4. Economic conditions: The overall health of the Indian economy is another important factor that can affect the Nifty Midcap Select Index. When the economy is strong, it creates more opportunities for small businesses to expand and succeed.