Nifty Smallcap 100

NIFTY Smallcap 100 Index

The Nifty Smallcap 100 Index is made of some of the top small cap stocks listed on the National Stock Exchange. The index tries to balance between the level of focus of NIFTY Smallcap 50 and the level of diversification and inclusivity of NIFTY Smallcap 250. Following the index can help you track key small cap companies in the Indian economy.

What is the NIFTY Smallcap 100?

The NIFTY Smallcap 100 index is a broad-based index on the National Stock Exchange (NSE) that captures the performance of the small-cap segment of the equities market. It is a diversified index of 100 stocks, wherein all 50 stocks from the NIFTY Smallcap 50 index are included, and the remaining 50 are selected from the NIFTY Smallcap 250’s constituents.

As of July 31st, 2023 the top sectors represented by the Nifty Smallcap 100 Index include Financial Services at 26.60%, followed by Capital Goods, Information Technology and Healthcare among others. The top 5 sectors together cover slightly more than 60% of the total index.

The NIFTY Smallcap 100 index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. The Smallcap 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 Smallcap 100 has a variant in the form of the NIFTY Smallcap 100 Total Returns Index. This index has practical applications for launching index funds, ETFs, structured products and for benchmarking fund portfolios.

Scrip Selection Criteria for the NIFTY Smallcap 100

The NIFTY Smallcap 100 share price is computed by weighting its 100 stocks on the basis of free-float market capitalisation relative to a base market capitalisation value on a real-time basis.

For inclusion in the NIFTY Smallcap 100 index, the companies are chosen by the following method:

1. The first 50 stocks are a part of the NIFTY Smallcap 50 index.
2. Next, 150 of the top stocks are chosen from the NIFTY Smallcap 250, based on full market capitalisation.
3. These 150 stocks are again ranked based the average daily turnover. The top 70 stocks from these ranks are chosen. The remaining 50 stocks of NIFTY Smallcap 100 are chosen from these 70 stocks.

The index will exclude stocks if:

1. Their rank falls below 180 from NIFTY Smallcap 250 universe based on full market capitalisation.
2. They feature among the top 180 in the NIFTY Smallcap 250 universe based on full market capitalisation, but rank below 130 based on average daily turnover.
3. They are replaced from NIFTY Smallcap 250 index.

A newly listed security’s eligibility is verified based on the data for 3 months instead of 6 months.

How is the Value of NIFTY Smallcap 100 Calculated?

The Nifty Smallcap 100 index is composed of multiple stocks whose values are incorporated into the value of the index. The index value is calculated as per the following formula:

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

Where,

Index Free Float Market Capitalisation = 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 Smallcap 100 index is reviewed semi-annually based on 6 months of data in the months of January and July every year. The replacement of stocks (if any), subject to a maximum of 15 in a given year, is implemented from the last trading day of March and September.

How To Invest in NIFTY Smallcap 100 Stocks?

Here are the ways in which you can invest in NIFTY Smallcap 100:

1. Invest in an ETF or index fund that tracks the index. This is a simple and convenient way to invest in the index, as you do not have to select individual stocks. The ETF or index fund will automatically invest in the same stocks as the index, in the same proportions.
2. Build your own portfolio of stocks from the index in a proportion that mirrors the composition of the index.

The best way to invest in the Nifty Smallcap 100 Index will depend on your individual circumstances and risk tolerance. If you are a beginner investor, it is a good idea to start by investing in an ETF or index fund. This will give you exposure to the index without having to worry about selecting individual stocks.

What are the Benefits of Investing in the NIFTY Smallcap 100?

The following are some of the benefits of investing in the NIFTY Smallcap 100:

1. The index has high potential for growth. Since its inception, the NIFTY Smallcap 100 index has given a CAGR of 13.38% in terms of price return until July 2023. Small cap companies, in general, hold immense potential for growth, especially if they have the capability to become large cap companies over time.
2. Although there is significant diversification within the index in terms of sectors, the top 3 sectors i.e. financial services, capital goods and information technology, cover over 51% of the total index, as of July 31st, 2023. These sectors are fairly high-performing sectors which can take the index’s performance forward in the coming years.

History of the NIFTY Smallcap 100

This NIFTY Smallcap 100 index was launched with the base date as January 1st, 2004, and the base value at 1000. The NIFTY Smallcap 100 share price since inception has breached the levels of 8000. It is reconstituted on a semi-annual basis.

Factors Affecting the NIFTY Smallcap 100

The following are some of the key factors affecting the NIFTY Smallcap 100 Index:

1. Interest rates and monetary policy - A decrease in the RBI’s policy rates can positively affect the amount of investment and credit circulating in the economy. This will help small-cap companies access more cash from financial markets.
2. Government policies - Government policies designed to bring in structural and technological progress that helps reduce costs for small companies will boost the stock prices of the small-cap companies in general. For example, stricter competition laws can help more small companies survive against larger ones. Such actions may help boost the market’s confidence in small-cap companies.
3. FIIs and DIIs - If the foreign institutional investors (FIIs) and domestic institutional investors (DIIs) decide to invest more cash into the economy, then it may help boost the Nifty Smallcap 100, along with others.

Black swan events - Rare but extreme events, such as COVID or the Russian-Ukraine war may affect the global economy and impact the Nifty Smallcap 100 in the process. In times of economic downturn, small-cap companies may find it harder to survive than larger companies. However, there could be major events that could boost the index as well, such as a stable government winning the election or an early monsoon season.