The National Stock Exchange of India (NSE) has launched a novel strategy index, the Nifty500 Multicap Momentum Quality 50 index. This index is designed to track the performance of large, mid, and small-cap stocks that exhibit both momentum and quality characteristics.
The Nifty500 Multicap Momentum Quality 50 index is constructed by carefully selecting 50 stocks from the Nifty 500 universe based on a combination of momentum and quality factors.
The momentum score for each company is determined based on its 6-month and 12-month price return, adjusted for volatility. The quality score for each company is determined based on return on equity (ROE), financial leverage (Debt/Equity Ratio) and earnings (EPS) growth variability analyzed during the previous 5 years.
To ensure diversification, the index is rebalanced semi-annually, and stock weights are capped at 5%. The index's base date is April 1, 2005, and its base value is 1000.
The index is heavily weighted toward Capital Goods (29.89%) and Financial Services (21.23%), with other significant sectors including Automobile and Auto Components (11.62%), Oil, Gas & Consumable Fuels (10.05%), and Healthcare (6.55%).
In terms of performance, the index has delivered a robust 71.04% return over the past year and a 32.49% compounded annual growth rate (CAGR) over the past 5 years.
Currently, REC holds the largest weight in the index at 5.62%, followed by Bajaj Auto (5.51%), Power Finance Corporation (5.46%), Coal India (5.35%), and Dr. Reddy's Laboratories (4.92%).
The Nifty500 Multicap Momentum Quality 50 index is anticipated to serve as a valuable benchmark for asset managers and be tracked by passive investment products such as ETFs, index funds, and structured products.