India ETFs set for change as NSE revamps Nifty index series

Feb 23rd, 2016 | By | Category: Equities

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The National Stock Exchange of India (NSE) indexing division India Index Services & Products (IISL) has announced structural changes to the Nifty Indices, a leading benchmark series for the emerging market giant’s equity market.

NSE revamp key Nifty indices linked to popular India ETFs

The Nifty 50 currently serves as underlying to several ETFs including the iShares India 50 ETF and the db x-tracker Nifty 50 UCITS ETF.

The move, which involves changes to the constituents of six existing indices (including the well-known and widely followed Nifty 50), as well as the launch of five new indices, was undertaken to more closely align the index series with industry best practices and better reflect the large-, mid- and small-cap segments of the Indian equity market.

The Nifty indices serve as the basis for numerous index-linked investment products and currently underlie several sizeable exchange-traded funds, including the iShares India 50 ETF (INDY) listed on the NYSE Arca with more than $600m in assets under management, and Deutsche Asset Management‘s db x-tracker Nifty 50 UCITS ETF (XNIF) listed on various European (including LSE), and Asian exchanges, with more than $200m in assets under management

The existing Nifty 500 Index, representing the largest 500 firms listed on the NSE by market capitalisation, has been used as the basis for the creation of three separate indices: the Nifty 100 Index, Nifty Midcap 150 Index and Nifty Smallcap 250 Index. These indices were designed to isolate and better reflect the performances of differing size segments of the Indian equity market. The Nifty 100 Index in particular has been updated to best reflect the performance of large-capitalisation companies in India and may serve over time to replace the existing Nifty 50. For ETF investors, this development may result in changes to ETFs such as the above in due course.

The constituents of these three new indices have also been further classified into sub-indices based on liquidity and market capitalisation criteria.

Additionally, the stock selection criteria for key indices has been revised. Changes include: equity securities with differential voting rights are to be eligible for index selection, subject to certain requirements; stocks must be available for trading in NSE’s Futures & Options segment to be eligible for inclusion in indices such as the Nifty Bank Index; the minimum free-float requirement of 10% has been removed; and new average daily turnover requirements for eligible stocks have been enforced.

Mukesh Agarwal, CEO, IISL, commented: “The new structure ensures that a company will be classified into only one of the segments viz large, mid and small market capitalisation and provide better reflection of the performance of the respective segments. The launch of new indices and the index restructuring will facilitate the introduction of investment products.”

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