Nifty Smallcap 50

What is Nifty Smallcap 50?

Nifty Smallcap 50 is a stock market index managed by the National Stock Exchange (NSE) of India, designed to track the performance of the top 50 companies in the small-cap segment. These companies are selected based on their free-float market capitalisation and liquidity from within the broader universe of small-cap stocks listed on the NSE. The index serves as a benchmark for investors, fund managers, and analysts interested in India’s emerging businesses with significant growth potential.

Launched to provide a transparent and representative gauge for the small-cap segment, Nifty Smallcap 50 captures the price movements and overall trends of promising, relatively smaller companies that may not be included in more prominent large-cap or mid-cap indices. The index offers a focused view of India’s entrepreneurial and innovative landscape, often reflecting higher volatility and growth prospects compared to large-cap peers. It is reviewed semi-annually to ensure it remains relevant and continues to represent the evolving small-cap sector.

Nifty Smallcap 50 stocks selection criteria

The selection process for Nifty Smallcap 50 is designed to ensure only the most representative and investable small-cap companies are included. The starting universe is the Nifty Smallcap 250 index, which comprises the top 250 small-cap companies ranked by average daily turnover and average free-float market capitalisation. From this pool, the top 50 companies with the highest average daily turnover over the last six months are selected to ensure liquidity. The companies must also have a minimum listing history, generally at least six months, to avoid including newly listed or highly volatile stocks.

Additionally, the index only includes companies that are available for trading in the Futures & Options (F&O) segment, further ensuring sufficient liquidity. The selection process emphasises diversification, limiting sectoral concentration so that no single sector overwhelmingly dominates the index. The index is reviewed and rebalanced semi-annually, during which additions or deletions are made based on the latest data on market capitalisation, trading activity, and liquidity.

How is the Nifty Smallcap 50 index calculated?

Nifty Smallcap 50 is calculated using the free-float market capitalisation-weighted method, a widely accepted approach for index calculation. In this method, each stock’s weight in the index is proportional to its free-float market capitalisation, which is calculated by multiplying the stock’s market price by the number of shares available for public trading (excluding promoter and locked-in shares). The index value is derived using the formula:

(Sum of free-float market capitalisation of all 50 constituent stocks / Index divisor) × Base value

The base date for the index is December 1, 2003, and the base value was set at 1000. The index divisor is periodically adjusted to account for changes such as stock splits, rights issues, bonus shares, and changes in the index constituents, ensuring consistency and comparability over time. The index is reviewed and rebalanced semi-annually to reflect the latest market dynamics. This calculation methodology ensures that Nifty Smallcap 50 accurately mirrors the performance of India’s top small-cap companies, providing a reliable tool for benchmarking and investment decision-making.