Nifty Next 50 derivatives set to transform mkt dynamics
New avenues for investment are opening up in the Indian stock market. The National Stock Exchange (NSE) launched derivatives contracts on the Nifty Next 50 index on April 24, 2024, following approval from SEBI. Alongside, the NSE stated that more than 375 trading members from across the country have participated in these new derivative contracts. But what's the reason behind the launch of these derivative contracts? Let's explore what Nifty Next 50 is and what the launch of its derivatives implies.
According to CNBC TV18, although the Nifty Next 50 Index was established in January 1997, it is still considered an emerging index in the Indian market. As of March 2024, the financial services sector companies account for 23.76% of this index, followed by capital goods at 11.91%, and consumer services at 11.57%.
It is interesting to note that while these companies are not currently part of the Nifty 50, their market capitalisation accounts for 18% of the total market capitalisation of listed companies on the NSE, which is around Rs 70 lakh crores (as of March 29, 2024). Moreover, the daily average turnover of these companies is also quite strong, accounting for 12% of the cash market turnover in FY24, which is Rs 9,560 crores. This indicates that companies in the Nifty Next 50 are quite promising for the future, and the introduction of derivative contracts could open up new avenues for investment.
As per Moneycontrol, the National Stock Exchange (NSE) has announced that it will not levy transaction charges for futures and options contracts on the Nifty Next 50 index for the next six months. This waiver is valid from April 24, 2024, to October 31, 2024.
What is the Nifty Next 50 Index?
No Transaction Charges for 6 Months!
Why did NSE Start F&O on Nifty Next 50?
The National Stock Exchange (NSE) has decided to start derivative contracts on the Nifty Next 50. There could be several reasons for this:
Exploring new opportunities in the market:
The Nifty Next 50 tracks companies are expected to perform well in the future. Launching derivative contracts provides investors with a new way to invest in these companies.
Increasing market liquidity:
Trading in derivative contracts increases liquidity in the market, making it easier for investors to execute orders.
Hedging option for investors:
Derivative contracts provide investors with an option to hedge against fluctuations in share prices.
What Impact Will It Have on the Market?
It remains to be seen what impact the derivatives contracts on Nifty Next 50 will have on the market. It is expected that increased trading in Nifty Next 50 will also improve liquidity. Additionally, according to Moneycontrol, Sriram Krishnan, Chief Business Development Officer of the NSE, recently stated that the introduction of derivative contracts on the Nifty Next 50 Index will enhance existing index derivative products. In simple terms, this could create new opportunities for investors.
Teji Mandi (TM Investment Technologies Pvt Ltd) is a SEBI registered Research Analyst (RA). Information in this article should not be construed as investment advice. Please visit www.tejimandi.com to know more.