Nifty Smallcap 100

What is the Nifty Smallcap 100?

The Nifty Smallcap 100 is an important equity index maintained by the National Stock Exchange (NSE), with the purpose of reflecting the performance of the largest 100 small-cap firms listed on the exchange. The index is used as a benchmark by investors, mutual funds and analysts who are interested in monitoring the growth and trends in India's small-cap space.

Small-cap companies are defined as those ranked 251st to 350th in terms of full market capitalisation within the Nifty 500 universe, representing emerging businesses with particularly great growth potential. The Nifty Smallcap 100 index includes firms from a wide range of sectors like manufacturing, pharmaceuticals, information technology, consumer goods and infrastructure, providing a diversified view of India’s entrepreneurial landscape. These firms often display higher volatility than their large- and mid-cap counterparts but can offer substantial returns during favorable market cycles due to their ability to scale rapidly.

The index is widely used to create small-cap mutual funds, exchange-traded funds (ETFs), and other investment products, allowing investors like you to gain exposure to India's exciting economic growth story. By tracking Nifty Smallcap 100, you gain targeted exposure to the country’s most promising and innovative smaller enterprises, making it an essential tool if you are one of those seeking high-growth opportunities with a higher risk-reward profile.

Nifty Smallcap 100 stocks selection criteria

The selection methodology for the Nifty Smallcap 100 index is transparent and rules-based, ensuring that only the most relevant and liquid small-cap companies are included. The process begins by identifying eligible companies from the Nifty 500 universe, which consists of the top 500 listed companies on the NSE by full market capitalisation.

From this pool, the top 100 companies are selected based on their average free-float market capitalisation over the past six months. Free-float market capitalisation considers only shares available for public trading, excluding those held by promoters, government, or strategic investors. Liquidity is another key criterion; eligible stocks must meet minimum thresholds for average daily turnover and trading frequency to ensure ease of buying and selling.

The index is reviewed and rebalanced semi-annually, during which stocks that no longer meet the size or liquidity requirements are replaced. Sectoral diversification is also maintained to prevent overconcentration in any particular industry, ensuring a balanced representation of India’s small-cap segment. The rigorous selection criteria provide investors with confidence that the index accurately reflects the most dynamic and actively traded small-cap stocks in the Indian market.

How is the Nifty Smallcap 100 index calculated?

The Nifty Smallcap 100 index is calculated using the free-float market capitalisation weighted methodology. For each constituent, the free-float market capitalisation is determined by multiplying the latest traded share price by the number of shares available for public trading (excluding those held by promoters and government). The sum of the free-float market capitalisations of all 100 constituents forms the numerator. This total is divided by a base market capitalisation, which is set at the inception of the index and adjusted for corporate actions. The formula is:

Index Value = (Sum of Free-Float Market Capitalisation of All Constituents) / Base Market Capitalisation × Base Index Value (usually 1,000)

Factors affecting the Nifty Smallcap 100

The performance of the Nifty Smallcap 100 index is subject to several influencing factors, both internal and external. Macroeconomic conditions such as GDP growth, inflation, and interest rate changes can significantly impact small-cap companies, which are often more sensitive to shifts in the economic environment.

Policy decisions, fiscal stimulus, and regulatory frameworks affecting specific industries or the broader economy can also sway investor sentiment and market performance. Liquidity conditions and capital flows, especially from domestic institutional investors and foreign portfolio investors, play a crucial role in driving small-cap stock prices. Company-specific factors—such as earnings growth, management quality, innovation, and execution capability—can lead to large price movements due to the relatively lower market capitalisation and trading volumes of small-cap stocks. Global factors like geopolitical tensions, currency fluctuations, and global commodity prices may also affect small-cap companies, especially those with significant export or import exposure.

Additionally, small-cap indices tend to be more volatile than large-cap indices, as these companies are in earlier growth stages and are more vulnerable to business setbacks or market downturns. Therefore, while the Nifty Smallcap 100 offers high growth potential, it also comes with increased volatility and risk, requiring investors like you to have a higher risk tolerance and a long-term investment horizon.