NSE revamps Nifty index

MUMBAI, APR 24: The National Stock Exchange NSE too has announced changes in its bellweather index - the Nifty. Similar to the major obj...

MUMBAI, APR 24: The National Stock Exchange NSE too has announced changes in its bellweather index 8211; the Nifty. Similar to the major objective behind the revamp of the BSE Sensex, the new inclusions in the Nifty too aim at making the index more representative of the new economy.

In fact, both the inclusions in the Nifty, Zee Telefilms and HCL Infosystems are new economy stocks. While the latter8217;s weightage in the new index would be only around 0.35 per cent using Thursday8217;s closing prices, Zee8217;s influence on the movement of the index would be around 7.5 per cent. Though the two exclusions, IDBI and EIH Ltd, still qualify to be in the index as far as NSE8217;s market capitalisation and impact cost measure for liquidity criteria go, their impact costs are considerably higher than those of the new entrants. New economy scrips would thus have a combined weightage of around 34 per cent in the revamped index, against a weightage of around 27 per cent in the existing index.

Even as the new economy stocks are taking a severe beating off late, a major chunk of trading interest still revolves around these stocks. Only the top ten technology stocks accounted for well over 50 per cent of the total traded value on the NSE on Thursday.

An index that is well representative of current market trends has nowbecome all the more important with index derivatives around the corner. As most portfolios are constructed around technology stocks, market players would be more comfortable hedging their risks against an index that represents the movement of new economy scrips to a greater extent.

Also, as a result of the revamp, the market capitalisation of the Nifty has increased by 10 per cent and would now represent about 44 per cent of the total market capitalisation of the NSE. Ironically, the market capitalisation of the Nifty was precariously close to that of the revamped Sensex, though it contains 20 more scrips than the Sensex. The inclusion of a market cap heavy-weight such as Zee Telefilms has helped in correcting this discrepancy.

However, a fallout of having a volatile scrip such as Zee Tele in an index pertains with maintaining an index fund. As this scrip is generally found at either the upper or lower end of the circuit filter, a fund manager tracking the index would find it increasingly difficult to track the index.