In this article, we will be discussing the NiftyIT Index, what is it, and how it works. Should You Invest? Get all your answers about this Index in the article, so, let’s get started.
Nifty IT Index:
- The NIFTY IT index captures the performance of Indian IT companies.
- The index is designed to reflect the behavior of companies engaged in activities such as software development, hardware, IT infrastructure, etc.
- The NIFTY IT Index comprises 10 companies listed on the National Stock Exchange (NSE)
- NIFTY IT Index can be used for a variety of purposes such as:
o benchmarking fund portfolios,
o launching of index funds, ETFs and
o structured products
- Index values are calculated on a real-time basis
- Index rebalancing is done Semi-annually – March and September
Eligibility Criteria:
- Companies should form part of the Nifty 500
- Companies should form part of the IT sector
- They should have minimum listing history of 1 calendar month and 90% trading frequency as the data cut-off date.
- The minimum number of stocks within the index should be 10
- In case, the number of eligible stocks within the Nifty 500 falls below 10, then the deficit number of stocks shall be selected from the universe of stocks ranked within the top 800 based on both average daily turnover and average daily full market capitalization based on previous six months period data used for index rebalancing of Nifty 500, provided the company meets the eligibility criteria of having minimum listing history of 1 calendar month and 90% trading frequency as the data cut-off date.
- In the case of NIFTY IT, a preference shall be given to companies that are available for trading in NSE’s Futures & Options segment at the time of final selection
- The companies are sorted in the descending order of the average free-float market capitalization (FF market capitalization) and the final selection of companies shall be made based on the FF market capitalization to form part of the index
- Companies will be included if their free-float market capitalization is at least 1.5 times the free-float market capitalization of the smallest index constituent in the respective index constituent.
Eligible industries for selection –
o Computers - Software & Consulting
o Computers Hardware & Equipment
o Education
o IT Enabled Services
o Software Products
Reconstitution & Rebalancing:
- In case of reconstitution of child indices, the latest index composition including the most recent changes in the respective parent index whether announced or yet to be announced shall be considered
- In case, the number of eligible stocks within the Nifty 500 falls below 10, then the deficit number of stocks shall be selected from the universe of stocks ranked within the top 800 based on both:
o average daily turnover and
o average daily full market capitalization based on the previous six months period data used for index rebalancing of Nifty 500
- There is a capping of 33% which means no single stock can have more than 33% weightage.
- At the time of rebalancing, the weights of the top 3 stocks cannot be more than 62% cumulatively.
- Rebalancing is done semi-annually: March & September
- All indices are reconstituted at pre-defined periodicity. Additional index reconstitution may take place in case:
o If an index constituent undergoes a merger, spin-off, delisting, or specific cases of restructuring which may affect share prices
o If the index constituent is moved to BZ/ SZ series
o If the index constituent is removed from the F&O segment
o If security is suspended for trading from the capital market or SME Emerge
o If there are adverse regulatory findings or order/governance-related issues
- In case of merger, spin off, capital restructuring or voluntary delisting, equity shareholders’ approval is considered as trigger to initiate replacement through additional index reconstitution
- For all other cases, replacements will be initiated based on notifications issued by the Exchange
- Replacement of stocks resulting from periodic index reconstitution will be implemented from the last trading day (beginning of day) of March and September
Recent Changes:
Index Constituents:
- The Top-3 stocks account for an allocation of 62.2% with the highest allocation to Infosys at 26.8% allocation which is then followed by TCS and HCLT Technologies.
Returns:
- Calendar year returns are above calendar returns of Nifty 500 for 2 out of 8 times. The fund yielded negative returns in 2016 of -5%.
- Trailing returns have remained lower than the category in all the years.
- As compared to the Nifty 500, the fund has shown strong performance by outperforming every year except for the last 1 year.
- In terms of Rolling Return too, the index has mostly outperformed against Nifty 500.
Risk Ratio:
- The standard deviation of this index is around 26% whereas the standard deviation of the Nifty 500 is around 22%.
- The beta of this index is below 1.
- The index has also generated Alpha quite very well. PE is slightly above the PE of Nifty 500.
How to invest in this index?
- There are following options available to invest in this index:
What should investors do?
Overall, this Index Fund/ETF has performed very well compared Nifty 500 index. It is Index/ETF focused on Nifty IT stocks and hence investors who want to give some tech allocation in their investment basket can evaluate this index. Investors with a moderate-risk appetite can keep this index on their radar, one can choose it according to their risk-taking appetite and return expectation. Do follow due diligence before making any investment decisions.
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