Demystifying the NIFTY Smallcap 100 Index for Investors
Demystifying the NIFTY Smallcap 100 Index for Investors
You know the importance of market capitalisation when investing in stocks. While large and mid-cap companies have higher valuations, small-cap entities can also help earn high returns. Investors can find the best small-cap companies with the help of the NIFTY Smallcap 100. Not to forget, the index also helps investors with benchmarking, informed small-cap stock investments, and more. Let us discuss what exactly the NIFTY Smallcap 100 index is in detail.
What is NIFTY Smallcap 100?
NIFTY Smallcap 100 is a broad and diversified stock market index in India. It is a part of NIFTY indices managed by the National Stock Exchange (NSE). NIFTY Smallcap 100 helps investors with research and benchmarking. Investors can compare the performance of their portfolios with that of the index to learn more. This consists of stocks of 100 public companies belonging to different industry sectors. It is crucial to note that the index includes small-cap companies with low market capitalisation.
Investing in small-cap companies can open doors to high returns with a chance for capital appreciation and multi-fold returns. The index is designed to balance the NIFTY Smallcap 50 and the NIFTY Smallcap 250 index. For the same rationale, it includes 50 stocks from both the NIFTY Small 50 and NIFTY Smallcap 250, respectively. NSE also operates a NIFTY Smallcap 100 Total Returns Index, a variant of the underlying index. It helps understand the return prospects of investing in these stocks.
History of the NIFTY Smallcap 100
The NIFTY Smallcap 100 index was launched to maintain the balance between the NIFTY Smallcap 50 and NIFTY Smallcap 250 indices. It was also launched for investors willing to invest in public companies with a low market capitalisation. It is part of the NIFTY indices operated by the NSE for investors in the Indian stock market .
Upon its launch, the base date given to the NIFTY Smallcap 50 index was the 1st of January 2004. The base value of the NIFTY Smallcap 100 index is 1000, as decided by the NSE. The base value and date serve as a benchmark to calculate the future values of these indexes. The index has grown over the years to breach the level of 13,000.
Factors Affecting NIFTY Smallcap 100
The value of the NIFTY Smallcap 100 index changes based on numerous factors. When the stock performance is not good, the value of these indexes will decline. Similarly, the index value will rise when constituent stocks perform well in the market. However, the stock performance is impacted due to several internal and external factors.
Monetary policy is among the biggest factors that impact the performance of the NIFTY Smallcap 100 index. For instance, a decrease in the Cash Reserve Ratio (CRR) can increase the circulation of money in the economy. As a result, small-cap companies will have access to more capital or funds. The market interest rates also impact the performance of this index.
Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) are also responsible for the growth of small-cap companies in India. Increased FII and DII activity can make it easy for small-cap companies to secure funding. The regulatory structure also has an impact on the index performance. A stricter regulatory framework might make it challenging for small-cap companies to grow. Several internal factors impact stock performance, thus changing the value of the NIFTY Smallcap 100 index.
Investors can find an ETF or an index fund to benefit from the growth of these indexes. Investing in financial products has several benefits linked with the NIFTY Smallcap 100. The index has performed well in the past few years due to the enhanced performance of small-cap companies in India. It has even breached the 13,000 level, thus indicating high growth.
NIFTY Smallcap 100 is a diversified index with entities belonging to different sectors. However, the top three sectors cover around 51% of the small-cap index. These sectors are financial services, capital goods, and Information Technology (IT) in India. Since these sectors are among the top-performing industries in the country, they will augment the index value in the future. The small-cap companies included in the index have the potential to become large-cap entities in the future, thus increasing the return for investors.
Invest in NIFTY Smallcap 100 Stocks
You cannot directly invest in a market index like the NIFTY Smallcap 100. A market index acts as a benchmark to compare the performance of your portfolio with the current market. Investors usually rely on the NIFTY Smallcap 100 to analyse the overall performance of small-cap companies in the stock market. However, you can replicate the stocks of these in your portfolio. Your stocks will perform well as the value of NIFTY Smallcap 100 rises.
Investors can choose Exchange Traded Funds (ETFs), index funds, and other financial products linked to the NIFTY Smallcap 100 index. Several collective investment schemes that track these indexes are available. For instance, you can find an ETF designed to track the index’s performance. The ETF will invest in the index stocks in the same proportion to replicate the exact performance.
Criteria for the NIFTY Smallcap 100 Index
As discussed above, the NIFTY Smallcap 100 index consists of stocks of 100 small-cap companies listed on the NSE. The companies selected in the index are not random. NSE has fixed criteria for companies to qualify for these indexes. When a company’s performance plummets or fails to meet the predetermined conditions, it can be removed from the index. Because of this, the constituents of the NIFTY Smallcap 100 index are modified at certain intervals.
The first fifty constituents for the NIFTY Smallcap 100 index are taken from the NIFTY Smallcap 50 index. It means that all stocks in the NIFTY Smallcap 50 index are automatically included in the NIFTY Smallcap 100. Next, the top 150 stocks are shortlisted from the NIFTY Smallcap 250 index. Selected stocks are ranked based on the full market cap and daily turnover to shortlist the remaining constituents of this index.
A stock can be removed from the index if its rank falls below 180 in the NIFTY Smallcap 250 index. It is crucial to note that the ranking is done based on the full market cap. Similarly, companies must meet other conditions to qualify for the NIFTY Smallcap 100 index.
How is the Value of the NIFTY Smallcap 100 Index Calculated?
Each participant contributes to the overall value of the NIFTY Smallcap 100 index. The index’s free-float market capitalisation must be known to calculate the index value. The free-float market cap of the index can be calculated as:
Free-Float Market Cap of the Index = Number of Outstanding Shares * Current Price * Capping Factors * IWF (Investable Weight Factor)
In the above formula, IWF is part of the total outstanding shares available for trading to the public. Once you have the free-float market cap of the index, the value can be calculated as:
NIFTY Smallcap 100 Index Value = (Free-Float Market Cap of the Index / Base Free-Float Market Cap) * 1000.
Note: In the above formula, 1000 is the base index value of NIFTY Smallcap 100.
Stocks Vs. Mutual Funds
Before you check the NIFTY Smallcap 100 chart, you must understand the dissimilarities between stocks and mutual funds, which are as follows:
When you invest in stocks of a company, you gain ownership stakes in the company.
You can purchase units of a mutual fund scheme. A mutual fund portfolio is diversified, consisting of multiple assets.
Stocks are usually less diversified. However, you can purchase stocks of numerous companies to diversify your portfolio.
Mutual fund portfolios that are more diversified.
You will manage your portfolio consisting of stocks.
The mutual fund manager is responsible for managing the portfolio on your behalf.
Stocks of the top-performing companies are usually more liquid.
Mutual fund units are relatively less liquid than stocks. Some mutual fund schemes might prevent investors from redeeming units before a given period.
Investing in stocks requires research on your end.
You will rely on the fund manager’s expertise by investing in a mutual fund scheme.
NIFTY Smallcap 100 is a reliable index representing the overall performance of small-cap companies in the Indian stock market. Investors can rely on this index for research, analysis, and comparison. You can also invest in ETFs and index funds tracking the performance of this index. Check the current value of the small-cap index now!