What Is the Nifty 200 Momentum 30 Index: Constituent Stocks, Sectors, and Index Returns?

The Nifty 200 Momentum 30 Index can be defined as a strategy index that tracks the performance of the 30 leading companies ranked on the basis on their individual normalised momentum score and are part of the larger Nifty 200 Index.

The normalised momentum score is determined by analysing the 6-month and 12-month price return, adjusted for volatility for each individual stock that is eligible for inclusion into this index. This normalized momentum score calculation method is the same as that of another popular momentum index – the Nifty Midcap 150 Momentum 50 Index. The only difference being the parent index that forms the basis of these strategy indices.

The Nifty 200 Momentum 30 Index is a modified free-float weighted index, which means that the weight of each stock in the index is derived by multiplying the free-float market capitalisation with the normalised momentum score of that stock. Subsequently, the 30 stocks with the highest score are featured on the index.

The index provides a method for investors to capture the performance of listed companies features in the Nifty 200 Index that exhibit high momentum characteristics. It is rebalanced semi-annually in June and December, ensuring that the index components remain representative of the current momentum trends in the market. The Nifty 200 Momentum 30 Index can therefore be considered suitable for investors looking for exposure to high-performing large-cap stocks and is often used as a benchmark for funds and various investment options that aim to implement a momentum investment strategy.

At present, investment options that use the Nifty 200 Momentum 30 Index as a benchmark index include both actively managed mutual funds as well as passively managed index funds and Exchange Traded Funds (ETFs) that attempt to replicating the index's performance. These passively managed schemes are usually feature low expense ratios, making them an attractive option for investors seeking cost-effective exposure to the Indian large-cap segment along with a momentum tilt.

Nifty 200 Momentum 30 Index is not just an index; it's a showcase of market leadership and momentum. Additionally, the 30 stocks featured on this index do not have equal weightage on the index. The top 10 constituent stocks and their individual weights as of December 31, 2023, are as follows.

As you can see from above Tata Motors is at the helm, carrying a weight of 5.30%. However, the individual weight of stocks such as Bajaj Auto, Dr. Reddy’s Laboratories, Trent and Coal India closely match this weight. This would minimize the concentration risk for any investor who invests in an index fund or exchange traded fund (ETF) that tracks the Nifty 200 Momentum 30 Index.

The diversification of this momentum index is not limited to just the number of stocks that it features. This is because the index consists of companies that belong to various sectors of the Indian economy. The key sectors featured on the Nifty 200 Momentum 30 Index as of December 31, 2023 are as below:

As you can see from above Tata Motors is at the helm, carrying a weight of 5.30%. However, the individual weight of stocks such as Bajaj Auto, Dr. Reddy’s Laboratories, Trent and Coal India closely match this weight. This would minimize the concentration risk for any investor who invests in an index fund or exchange traded fund (ETF) that tracks the Nifty 200 Momentum 30 Index.

As mentioned earlier, the Nifty 200 Momentum 30 Index features 30 stocks from the Nifty 200 Index that are ranked on the basis of their normalised momentum scores. To better understand whether this can generate potentially high returns let’s take a closer look at the returns that this index has yielded over different time periods as of 31 December 2023:

These historical returns of the Nifty 200 Momentum 30 Index indicate that the short-term 1-year performance (absolute returns) of this momentum index has been significantly better that its longer 5 year and since inception CAGR returns performance.

This indicates that the momentum strategy might perform better over relatively shorter periods as compared to the longer term. You can use a variety of financial calculators such as the Index Fund Calculator to determine the potential growth of your investment over various time periods.

For investors interested in investing in the 30 equity stocks that comprise the Nifty 200 Momentum 30 Index, there are two key options:

• Index Funds: These are passively managed mutual funds and aim to replicate the performance of the Nifty 200 Momentum 30 Index by holding a portfolio of the 30 constituent stocks in the same proportion as the index.
• Exchange Traded Funds (ETFs): ETFs that track the index also feature the same 30 momentum stocks in the same proportion as the index as the underlying asset. But in comparison to index funds or other mutual funds, ETFs offer the added flexibility of being traded in real-time like an equity stock on stock markets.

Both Index Funds and ETFs provide a cost-effective and easy way to gain exposure to the Nifty 200 Momentum 30 Index without the need to individually select and buy these 30 constituent stocks.

Investing in the Nifty 200 Momentum 30 Index is not suitable for all investors. However, this can be attractive to those with a high tolerance for risk who desire to benefit from momentum movement of stocks. Additionally, since the 30 stocks in this momentum index are part of the Nifty 200 index, this can appeal to investors seeking to invest in the large and midcap space along with the benefit of momentum strategy. But investors should consider maintaining a relatively small allocation towards such investments i.e. not more than 15% of the overall portfolio to minimize the potential risk to their overall portfolio.

However, many experts recommend that momentum strategy might be more suitable for achieving relatively short term financial goals i.e. investment horizon of up to 3 years like arranging down-payment of a house or paying for a new car. This is primarily because historically the short-term performance of a momentum index has often outperformed the longer term performance of these indices.