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What is Nifty 500 Multicap Momentum Quality 50 Index

What is Nifty 500 Multicap Momentum Quality 50 Index: Constituents, Methodology & Sector Allocation?

Some investors are always seeking out new ways to gain an edge over others in an attempt to reach their investment goals faster. One of the emerging strategies currently gaining popularity involves combin

What is the Nifty 500 Multicap Momentum Quality 50 Index?

The Nifty 500 Multicap Momentum Quality 50 Index is a strategy index consisting of 50 stocks drawn from the larger diversified Nifty 500 Index. So, this index tracks the performance of leading large-cap, midcap and small-cap companies in the Nifty 100, Nifty Midcap 150 and Nifty Smallcap 250 indices that are selected on the basis of a combination of momentum and quality factors.

As per current stock selection criteria, the Nifty 500 Multicap Momentum Quality 50 Index features 10 stocks selected from the large cap category, 15 stocks from the midcap category and 25 stocks from the smallcap category. Each of these stocks feature the highest composite momentum quality scores among the companies featured in each market capitalization category.

The weight of each stock on this index is based on a combination of the composite momentum-quality score of the individual stock and its free-float market capitalization. The Nifty 500 Multicap Momentum Quality 50 Index undergoes bi-annual rebalancing in June and December.

Fund Size (AUM)

₹ 848.97 Cr

NAV

₹ 15.7900

1 Year Returns

55.43%

Benchmark Index

Nifty Smallcap 250 Quality 50 Index

Inception Date

11 August 2023

Stock Selection Methodology of the Nifty 500 Multicap Momentum Quality 50 Index

To better understand how the Nifty 500 Multicap Momentum Quality 50 Index provides a unique combination of flexi-cap orientation while combining benefits of various momentum and quality score parameters, let';s take a closer look at the stock selection methodology of this index.

The universe used for selection includes all companies listed in the Nifty 100, Nifty Midcap 150 and Nifty Small-Cap 250 indices. So, any stock that is not part of these indices is automatically disqualified from inclusion into the Nifty 500 Multicap Momentum Quality 50 Index. Additional exclusion criteria include:

Stocks that a listing history shorter than 1 years

Companies that have hit the upper or lower circuit of share price on 20% or higher number of trading days during the previous 6 months

Company featuring pledged shares higher than 20% of promoter share holdings

Shares with low liquidity in each segment i.e. stocks in the bottom 10 percentile in terms of average daily turnover and/or turnover ratio in the past 6 months are also excluded

Note: The above list of exclusions is illustrative, not exhaustive and further details of these criteria can be obtained from the Nifty Indices official website.

After stocks have been shortlisted based on the above criteria, the momentum score of individual stocks are calculated based on 6-month and 12-months price return, adjusted for volatility. The quality score of these stocks is also calculated individually based on financial leverage, return of equity (RoE), and EPS (earnings per share) variability analysed over the past 5 years. Subsequently, the composite momentum-quality score of each stock is calculated and each stocks is ranked with respect to others in its market capitalization category.

Based on this composite momentum-quality score ranking, the top 10 large cap stocks, the top 15 midcap stocks and the top 25 smallcap stocks are selected as part of the Nifty 500 Multicap Momentum Quality 50 Index. New stocks may be included in the Index and old stocks may be removed on a semi-annual basis when the composite momentum-quality score is calculated at the time of index rebalancing. The individual weight of each stock featured on this index is determined based on a combination of the stock's free-float market cap and its composite momentum-quality score.

What are the Key Stocks Featured in the Nifty 500 Multicap Momentum Quality 50?

As mentioned earlier, the Nifty 500 Multicap Momentum Quality 50 Index consists of 50 stocks in total. Out of which 10 belong to the large cap segment from the Nifty 100 Index, a further 15 belong to the midcap segment from the Nifty Midcap 150 Index and the remaining 25 are small-cap stocks from the Nifty Smallcap 250 Index.

The below lists the top 10 stocks featured on the Index and ranked on the basis of their individual weights as of 30 September, 2024:

Stock Name	Weight on Index (%)
Bajaj Auto Ltd.	6.32
Coal India Ltd.	5.26
REC Ltd.	5.09
Hero MotoCorp Ltd.	5.02
Power Finance Corporation Ltd.	4.90
Dr. Reddy's Laboratories Ltd.	4.78
Bharat Electronics Ltd.	4.51
Cummins India Ltd.	4.47
Varun Beverages Ltd.	4.46
Dixon Technologies (India) Ltd.	4.45

As you can see, the weight of an individual stock does not exceed 6.32% and this low exposure to any single company can help minimize the concentration risk for any investor who invests in this index via an exchange traded fund or index fund. Moreover, due to the multi-cap orientation of this index, schemes that replicate this index can create a well-diversified portfolio that includes stocks across various market capitalizations.

What are Key Sectors Featured in the Nifty 500 Multicap Momentum Quality 50 Index?

Apart from diversification across stocks belonging to different market capitalizations, the Nifty 500 Multicap Momentum Quality 50 Index also provides investors with exposure to different sectors. This is evident when one takes a closer look at the different sectors featured on this index along with their individual weight as of 30 September 2024:

Sector	Weight in Index (%)
Capital Goods	30.16
Financial Services	19.99
Automobile and Auto Components	12.63
Oil, Gas & Consumable Fuels	9.19
Healthcare	6.42
Fast Moving Consumer Goods	5.67
Consumer Durables	4.45
Chemicals	3.63
Information Technology	2.72
Metals & Mining	2.55
Construction	2.18
Consumer Services	0.26
Services	0.15 <

Note: The above sector-wise classifications are on the basis of sector classification definitions of the NSE and IRDAI classification of sectors may be different.

As you can see from the above table, with 30.16% weightage, the Index has high exposure to the Capital Goods sector. Moreover, with an additional weight of 19.99% in Financial Services, the top two sectors together account for just over 50% asset allocation on this Index. The remainder weightage of approx. 50% is distributed across various other sectors. This diversification can help the index benefit from the growth of various sectors in the Indian economy.

Nifty 500 Multicap Momentum Quality 50 Index Returns

The Nifty 500 Multicap Momentum Quality 50 Index has historically provided significantly high short and long-term returns that have beaten inflation. This is evident when one takes a closer look at the returns provided by this index over various time periods:

Returns Period	Total Return (%)
1 Year Return	61.19%
5 Year Return	31.02%
Returns Since Inception	23.60%

Note: The above returns data are as of 30 September 2024.

While past returns do not guarantee that the same level of performance will be maintained in the future, staying invested over the long term in this index has the potential to provide significant capital appreciation for investors.

How to Invest in Nifty 500 Multicap Momentum Quality 50 Index?

As per current rules, it is not possible to directly invest in any index in India. However, you can invest in the Nifty 500 Multicap Momentum Quality 50 Index indirectly in 3 ways:

Replicating the Index: You can purchase individual stocks from the stock market and recreate the index by matching the allocation of individual stocks on the index. This approach of replicating the index by yourself is bound to be quite time consuming and expensive as you have to also consider rebalancing the index constituents on a semi-annual basis which will require additional cost and effort.

Invest in an Index Fund: An index fund is a type of passively managed scheme that replicates and tracks a chosen index. In this case, an index fund that tracks the Nifty 500 Multicap Momentum Quality 50 Index would replicate the individual constituents of this index with the aim of providing returns similar to the index within the margins of tracking error. This type of scheme features professional fund management and investors have to pay a fund management fee. This is a cost-effective way to benefit from this investment.

Invest in an ETF: An ETF or exchange traded fund is a type of passively managed investment that operates similar to a mutual fund but its units can be traded on stock exchanges similar to equity stock. While ETFs also attempt to replicate the performance of an index similar to index funds, these ETF units can currently only be purchased if one has a functional Demat and brokerage account. Even then, the cost of investing in an index through ETFs is significantly lower than attempting to replicate an index through direct stock market investments.

Who Should Invest in Nifty 500 Multicap Momentum Quality 50 Index?

The recent increase in interest among investors for passive investment options has led to a significant increase in the availability of various index funds and ETFs in India that track a wide range of indices. These offer an easy and cost-effective way to invest in Indices for various groups of investors.

Those who are focusing on long-term capital appreciation with an investment horizon greater than 5 years

Investors seeking a diversified equity stock portfolio selected on the basis of momentum and quality scores of stocks

Investors with high-risk appetite who are comfortable with short term market volatility

Individuals who are seeking to benefit from passive investment strategy that eliminates fund manager bias in stock selection

So, Investors who are willing to make a long-term investment and have the conviction of investing in momentum-driven high quality stocks should definitely consider including an index fund or ETF tracking the Nifty 500 Multicap Momentum Quality 50 Index as part of their investment portfolio. However, it is always advisable to ensure that the scheme fits into your overall investment plan and goal before making a decision.

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