Understanding the NIFTY Infrastructure Index for Investors
Understanding the NIFTY Infrastructure Index for Investors
The infrastructure sector in India is a buzzing place for both issuers and investors. While infra companies are reaching new heights, investors are also earning high returns. Investors interested in this sector keep a tab on the NIFTY Infrastructure index. It helps track the performance of the top companies and make informed decisions. NIFTY offers a range of thematic indices for investors to gauge the sector’s performance. Continue reading to understand the index in detail.
What is the NIFTY Infrastructure?
NIFTY Infrastructure is a popular thematic index in India. It is an index on the National Stock Exchange (NSE), which operates the entire range of indices. The index value can help you understand the overall performance of the infrastructure sector in India. It denotes the performance of the infrastructure sector in real time. It consists of 30 constituents, which are the top infra companies in India.
The index consists of 30 public companies listed on the NSE. These companies belong to Railways, Roads, Telecom, Power, and other sub-sectors forming the infrastructure industry. Some companies forming the index are ACC, Adani Ports, Ambuja Cements, Apollo Hospitals, Ashok Leyland, Bharti Airtel, and GAIL. Launched on the 7th of August 2007, it has become one of India’s most trusted thematic indices. The index’s base date and base value are 1st of January 2004 and 1000, respectively.
Every constituent in the index has a weightage. However, some companies or sub-sectors might have more weightage than others in it. Based on their weightage, each stock contributes to its value. The index is reconstituted semi-annually by the concerned parties. BOD of NSE Indices, the Index Advisory Committee, and the Index Maintenance Sub-Committee are responsible for managing it for investors.
How is NIFTY Infrastructure Calculated?
The index consists of 30 stocks belonging to 11 different sectors. You already know that each stock has a weightage in the index’s total value. Stocks are weighted based on the capped free-float market cap. Also, the free-float market cap is measured relative to the base market cap. Before we get to the formula, you must know that there are certain conditions for stocks to be included in it. For instance, a stock should be listed on the NSE and part of the NIFTY 500 . Stocks that do not fulfil the conditions might be removed from the index after some time.
You can calculate the NIFTY Infrastructure index value with this formula:
NIFTY Infrastructure Index Value = Real-time index market cap / (base free float market cap * 1000)
In the above formula, you can get the real-time index market cap by finding the product between outstanding shares, capping factor, share price, and IWF (Investable Weight Factors).
How are Stocks Selected for Inclusion in NIFTY Infrastructure?
As discussed above, stocks must fulfil certain criteria to be included in the index. However, there might be a case where the eligible stocks for the stocks go below ten. In such a case, the top-ranked stocks based on daily turnover and full market cap are selected. Another condition for inclusion is that the company must belong to the infrastructure sector in India.
Constituents of the NIFTY Infrastructure index must have a trading frequency of 90% or more in the past six months. Also, the company must have a listing history of at least six months for inclusion. Usually, the eligibility criteria for different stocks are checked for six months. However, the period might decrease to three months for a newly-listed company in the infrastructure sector. Also, the weightage of a single stock in the index cannot go beyond 20%.
How to Invest in NIFTY Infrastructure?
It is crucial to note that this thematic index is not a financial instrument. It tracks the performance of the top infra companies in India. For the same rationale, you cannot directly invest in this index or any index. Most investors use it to perform investment research in the infrastructure sector. However, you can find financial instruments attached to it.
Investors can find mutual fund schemes and Exchange Traded Funds (ETFs) that track their performance. You can also find exchange-traded derivatives based on its value. FUTIDX DIX and OPTIDX are some popular derivatives with their value as the underlying asset. You can also purchase individual stocks and try to replicate their performance in your portfolio.
What is the Objective of NIFTY Infrastructure?
NIFTY Infra works as a benchmark to measure the performance of the entire infrastructure industry in India. Since the index consists of the top infrastructure companies in India, its performance nearly represents the overall industry. Investors do not have to delve deeper into the infrastructure industry to understand how it is performing. They can view the value of the NIFTY Infra index to gauge the industry performance instantly. It is a statistical tool for investment research and analysis in the infrastructure sector.
Besides investment research, the NIFTY infrastructure index benefits Asset Management Companies. These companies link index mutual funds, ETFs, and other collective investment schemes with this index. A NIFTY Infrastructure index fund can help invest in a diversified portfolio. Many investors try to replicate the NIFTY Infra index in their portfolios. However, replication is a little challenging as you must purchase stocks of all companies.
NIFTY Infra is a popular thematic index on the National Stock Exchange. You can use this thematic index to gauge the performance of the infrastructure sector in India. Mutual funds, ETFs, and derivatives are attached to the NIFTY Infra index for trading. One can also try to replicate the entire index by purchasing stocks of different companies individually. Check the NIFTY Infrastructure index value now!