NSE Indices, the index services subsidiary of the National Stock Exchange of India (NSE), has launched a new strategy index, the Nifty500 Multifactor MQVLv 50. This index tracks a portfolio of 50 stocks selected from the Nifty 500 based on a combination of momentum, quality, value, and low volatility factors.
The index employs a sophisticated methodology to select its constituents. Momentum is assessed using 6-month and 12-month price returns, adjusted for volatility. Quality is evaluated based on return on equity (ROE), financial leverage (debt-to-equity ratio), and earnings per share (EPS) growth variability over the past five years. Value is determined using the earnings-to-price ratio (E/P), book value-to-price ratio (B/P), sales-to-price ratio (S/P), and dividend yield. Volatility is calculated as the standard deviation of daily price returns over the last year.
Each stock's weight in the index is determined by its composite factor score, capped at the lower of 5% or five times its free-float market capitalization weight in the underlying Nifty 500 index. The index has a base date of 1 April 2005, with a base value of 1000. It will be reconstituted and rebalanced semi-annually in June and December.
The index has experienced a decline in the short term, with both quarter-to-date and year-to-date returns at -5.40%. However, it shows positive returns over longer periods, with a 5.75% gain over one year, a 24.09% CAGR over five years, and a 20.68% CAGR since its inception (1 April 2005). While recent performance is negative, the index demonstrates overall growth when viewed from a broader timeframe.
Colgate Palmolive (India) holds the highest weight in the index at 2.85%, followed by SBI Cards and Payment Services at 2.72% and Indian Oil Corporation at 2.70%. The remaining constituents, including major companies like ONGC, Coal India, Torrent Pharmaceuticals, Maruti Suzuki, Divis Laboratories, Bharat Petroleum, and Bajaj Finserv, each have weightages between 2.49% and 2.62%, indicating a relatively balanced distribution among the top holdings.
NSE Indices anticipates that this new index will serve as a benchmark for asset managers and a reference index for passive investment vehicles such as Exchange Traded Funds (ETFs), index funds, and structured products. The index offers a rule-based, transparent approach to investing in a diversified portfolio of stocks exhibiting a combination of desirable financial characteristics.