The Nifty Midcap 150 Momentum 50 Index essentially focuses on identifying and then tracking the current performance of the top 50 high-momentum firms within the Nifty Midcap 150 space. This premium selection process helps utilize the “Normalized Momentum Score” which is typically calculated on the basis of a company’s 6-month and 12-month earning returns, adjusted for market volatility to help account for market risk. Additionally, the stock weights within this index are essentially determined using a combination of the availed momentum score and the firm’s market capitalization, reflecting its recent performance and actual underlying size.
Aim of Nifty Midcap150 Momentum 50 Index
The Nifty Midcap150 Momentum 50 Index typically aims to track the overall market performance of the top 50 companies that are in the Nifty Midcap 150, which are selected on the basis of their Normalized Momentum Score. It should be remembered that the Normalized Momentum Score for a given company is determined after weighing in the 6-month and 12-month returns and after adjusting for market volatility. Notably, the stock weights depend on a blend of the certain stock’s Normalized Momentum Score along with its free-float real-time market capitalization. This index can be used for multiple purposes. For instance, it can be used to create index funds, structured products, and ETFs. These aspects of the Nifty Midcap 150 Momentum 50 Index make it crucial in more than one way.
What You Should Know About Nifty Midcap 150 Momentum 50 Index
The stocks part of or going to form part of Nifty Midcap 150 during the review are deemed eligible for being included in the index. The said stocks must have been listed for at least a year as on the set cut-off date.
Non-future and options stocks with the Nifty Midcap 150 are deemed ineligible for inclusion. However, such a thing would happen if the total instances of the specific stock hitting the upper or lower price band AKA the circuit break during the 6 months for more than at least 20% of the total trading days in the period.
This index comprises 50 top firms based on the highest Normalized Momentum Score. The weight of the stocks in the Nifty Midcap 150 Momentum 50 Index has to be derived by simply multiplying the free float market cap with the actual Normalized Momentum Score of the stocks.
Notably, each stock in the Nifty Midcap 150 Momentum 50 Index is capped at the lower of 5% or in other words 5X the weight of the given stock in the index based on its free float market capitalization. Capping on stocks is done semi-annually, during the time of rebalancing. The weight of the Nifty Midcap 150 Momentum 50 Index’s components is capped semi-annually in the month of June and December. The Nifty Midcap 150 Momentum 50 Index is rebalanced semi-annually on the basis of the data of the last trading day of the month of May and November.
Notably, a professional team with the required expertise manages the NSE indices. Typically, there exists a three-tier governance structure – first the Board of Directors of NSE Indices Limited, second the Index Advisory Committee (Equity), and last the Index Maintenance Sub-Committee.
How to Invest in the Nifty Midcap 150 Momentum 50 Index?
Individuals can invest in the Nifty Midcap 150 Momentum 50 firms in the same proportion as they are set in the index. Notably, the Nifty Midcap 150 Momentum 50 Index selects the 50 best mid-cap firms using the momentum factor. In other words, the index highlights firms that did well as per their price performance.
The index typically identifies such top-performing stocks by calculating the momentum scores. Such a score is essentially based on their last 6 and 12 months’ price performance which is also adjusted for volatility.
Returns aimed to be in line with the index returns are subject to the phenomenon of tracking error. Such a phenomenon can be described as the deviation of fund performance when compared against the respective index.
In order to gain from the Nifty Midcap 150 Momentum 50 Index, individuals get to invest in the top 50 mid-cap firms that have been performing well with respect to their recent price movements. Typically, individuals get to park money into the firms at a lower cost. This adds to their returns on investment over the long term.
Notably, individuals can easily set up an SIP route in their choice of index funds compared to the ETFs. By investing in this index, they significantly lower their efforts when they track or review their portfolio.
What is the Basic Philosophy of Investing in Nifty Midcap 150 Momentum 50 Index?
The mid-cap stock segment might prove to be a lucrative avenue when it comes to earnings stability and offering growth prospects. These segments of stocks can be explored for many investment opportunities, particularly in key investment themes.
This is why it is not really surprising to see that a lot of industry leaders are emerging in the midcap segment. Notably, momentum investing is essentially a rule-based investing system that facilitates buying and selling stocks based on past earnings. This approach to investing helps tackle the dispersion of earnings in mid-cap space and allows proper selection of potential outperformers.
It is essentially based on the typical herd behavior of the investors. In other words, when investors rush to park money in outperforming stocks, the trend solidifies. In turn, the lucrative stocks potentially outperform the broad market on a large scale.
How to know if investing in the Nifty Midcap 150 Momentum 50 Index is for you?
Investing in the Nifty Midcap 150 Momentum 50 Index would be suitable for you if –
- You wish to park money into stocks of midcap companies based on a momentum strategy.
- If you have a higher risk appetite and can weather drastic market changes.
- If your investment horizon is a minimum of 5 years and you have a life cover to account for unforeseen emergencies.
- You are looking for a simple investment route in midcaps and do not necessarily have the time to track and review your allocations frequently.
However, it is advised that investors must consider their risk appetite closely before investing in the stocks of this index. This is because the funds tend to be more volatile in the short run and it is best to remain invested in them for at least 5 to 7 years to spread out the risk.