MIDCPNIFTY OPTION CHAIN

WHAT IS THE NIFTY MIDCAP SELECT INDEX?

The Nifty Midcap Select Index is one of the most prominent mid-cap indices listed on the National Stock Exchange (NSE). The Nifty Midcap Select is a vital stock market index consisting of highly liquid shares of specific mid-cap companies.

The index tracks the performance of 25 highly liquid stocks selected from the Nifty Midcap 150 index. The stocks included are chosen based on various factors such as market capitalization, average daily turnover, and the availability of derivative contracts. The Nifty Midcap Select Index spans across 13 sectors which include Capital Goods, Financial Services, Automobile and Auto Components, IT, Consumer Services, Consumer Durables, Power, Healthcare, Textiles, Media, Entertainment and Publication, Services, Oil, Gas and Consumable Fuels, and Realty.

The Nifty Midcap Select Index has a variant in the form of the Nifty Midcap Select Total Returns Index, which is generally used to launch index funds, ETFs, structured products, and benchmarking fund portfolios. Futures and Options are also available on this index, making it a valuable tool for hedging.

This index was launched on September 14, 2021, with the base date being October 3, 2005 and the base value at 1000. SEBI further approved the introduction of Futures and Options to this index with effect from January 24th 2022. Nifty Mid-Cap Select Index has a high beta of 1.10 vis-à-vis the diversified index, however it has a low correlation of 0.76 with the Nifty-50 index.

HOW IS THE NIFTY MIDCAP SELECT INDEX VALUE CALCULATED?

The value of the Nifty Midcap Select Index is calculated by weighting 25 stocks on the basis of free-float market capitalization relative to a real-time base market capitalization value.

The formula below is used to calculate the index value:

Index Value = (Current Index Free Float Market Capitalization / Base Free Float Market Capitalization of Index) * Base Index Value

Wherein,

Index Free Float Market Capitalization = Current shares outstanding * IWF * Capping factor * Price

[IWF = Investible Weight Factor, which represents the number of outstanding shares that are available for public trading on the exchange. Capping factor = 1 in case of uncapped indices]

The Nifty Midcap Select Index value is based on 6 months of data and is reviewed semi-annually in January and July each year. If any stock needs to be replaced, it is implemented only on the last trading day of March and September. If the stock is no longer available for F&O trading or any corporate actions are initiated, further reconstitution may be carried out.

SELECTION CRITERIA FOR SCRIPS IN THE NIFTY MIDCAP SELECT INDEX

Before we head into the selection criteria for scrips under the Nifty Midcap Select Index, let’s understand a few terms used in this process.

• Eligible Universe: Companies that are a part of (or are going to be a part of) the Nifty Midcap 150 and have Futures and Options trading will be a part of this universe.
• Ranked Universe: Companies from the eligible universe would then be sorted out based on the 6 months average of full market capitalization. The top 5 companies would then become a part of this ranked universe.
• Re-Ranked Universe: After selecting the ranked universe, the rest of the companies in the eligible criteria will be further sorted out based on the 6-month average of full market capitalization and the 6-month average of daily turnover. The top 50 from this list will then become a part of the Re-ranked list.
• After shorting as per the above criteria, the index will be formed.
• From these 25 stocks, all the five stocks from the Ranked universe will be a part of this index.
• Then, the top 20 companies from the Re-Ranked Universe would be included in this index based on their free float market cap.
• Thus, the Nifty Mid-Cap Select Index is a portfolio of focused 25 stocks within the Nifty Midcap 150 Index.
• The weightage of these 25 companies is given based on the free float market cap. The company with the highest free float market cap would have the highest weightage in the index.
• Any company that is not a part of or falls beyond the 30th rank in the Re-Ranked Universe will compulsorily be excluded from the Nifty Mid-Cap Select Index.

WHAT IS THE OBJECTIVE OF THE NIFTY MIDCAP SELECT INDEX?

The main aim of the NIFTY Midcap Select Index is to mirror the performance and trends of a specific set of 25 midcap companies from the NIFTY Midcap 150 index. This selection for the Nifty Midcap Select Index is based on the companies' float-adjusted market capitalization.

WHAT ARE THE BENEFITS OF INVESTING IN THE NIFTY MIDCAP SELECT?

The Nifty Midcap Select Index is a group of stocks that offer several benefits for investors. Some of these benefits include:

1. Liquidity:

Since these mid-cap stocks are traded on the Nifty Midcap Select as F&O contracts, they are likely to be more liquid in the cash segment. This means that investing or holding these stocks would have lower liquidity risk than other stocks.

2. Analyzing Trends:

Traders can analyze the trends in the stock's derivative prices since derivatives trading is available for each of these stocks. This helps traders make better-informed decisions on whether to sell or buy the stock.

3. Hedging:

Traders can hedge the risks associated with trading or investing in these stocks by combining futures and options. This can be particularly advantageous in volatile markets, allowing traders to limit their potential losses.

4. Expiry:

Traders interested in Nifty Mid-Cap Select Options can choose to trade in weekly, monthly, or quarterly contracts. On July 12, 2023, the National Stock Exchange (NSE) issued a circular announcing that from August 16, 2023, the expiry and maturity date for all current futures and options contracts under NIFTY Midcap Select (MIDCPNIFTY) will be rescheduled to take place on Mondays. Specifically, weekly contracts will expire on every Monday, while monthly and quarterly contracts will expire on the last Monday of the respective contract month. In the event that Monday is a holiday, the contract expiry date will be moved to the previous trading day.

SHOULD YOU INVEST IN THE NIFTY MIDCAP SELECT INDEX? IS IT A SAFE INVESTMENT OPTION?

Since its inception, the NIFTY Midcap Select index has generated a total return of 13.13%, while over the past 5 years, it has generated a return of 10.77%. However, it's important to note that the returns of this index can be volatile due to its high beta nature. In the past 5 years, the NIFTY Midcap Select index has shown a low correlation of 0.84 with the NIFTY 50, while the beta levels have averaged out at 1.03 against the benchmark index.

FACTORS AFFECTING THE NIFTY MIDCAP SELECT INDEX

Following are a few factors that affect Nifty Midcap Select:

1. Interest Rate and Cost of Capital:

The performance of the Nifty Midcap Select Index is highly influenced by fluctuations in the cost of capital. When interest rates are low, businesses can obtain funds at a lower cost, leading to increased investment and overall economic growth. This can particularly benefit mid-cap companies, which are often perceived as more volatile than large-cap companies.

2. Government Policies:

The Nifty Midcap Select Index can be influenced by government policies. For instance, policies that are aimed at supporting businesses, such as tax incentives and grants, can provide the necessary impetus for companies to grow and thrive in a competitive market, even in the face of larger competitors.

3. Foreign Investments:

The inflow of foreign investment in India can have an impact on the Nifty Midcap Select Index. With foreign investors buying Indian stocks, there can be an upward pressure on prices, which can prove to be beneficial for mid-cap and small-cap companies. This can lead to increased investment opportunities and growth prospects, ultimately contributing to the overall development of the Indian economy.

4. Economical Condition:

The well-being of the Indian economy is a crucial determinant that can impact the Nifty Midcap Select Index. A robust economy can create ample opportunities for small businesses to thrive and grow, thereby contributing to the overall development of the market. On the other hand, a weak economy can lead to a decline in investment opportunities, which can negatively affect the performance of the Nifty Midcap Select Index.

HOW TO INVEST IN NIFTY MIDCAP SELECT STOCKS?

There are three ways to invest in the Nifty Midcap Select Index:

• Traders can choose to invest in an ETF or an index fund, which will allow them to invest in a similar pattern as the stocks that make up that index. This will enable traders to benefit from the growth in the index's value.
• Alternatively, traders can trade in futures and options that have the Nifty Midcap Select Index as the underlying asset. Any changes in the value of the index will affect the outcome of the future or option contract.
• Lastly, traders can also trade by selecting a few stocks from the Nifty Midcap Select Index and buying them in the same proportion as the index. This method also gives one the option to pick and choose the stocks they invest in.

HOW TO INVEST IN NIFTY MIDCAP SELECT VIA ICICI DIRECT?

Now that you know the various instruments you can use to invest in the Nifty Midcap Select Index, let’s have a quick run down on how to invest in this index via the ICICI Direct Website.

Step 1: Look up ICICI Direct on a search engine

Step 2: Click on the website link and login into your account

Step 3: Once you’ve logged into the account; Select the F&O tab

Step 4: Enter Stock MIDCPNIFTY in the dropdown and select Nifty Midcap Index to get started.