NSE Introduces Derivatives on Nifty Next 50 Index

In a move set to diversify its derivative offerings, the National Stock Exchange of India (NSE), the leading derivatives exchange globally in 2023, has secured approval from the Securities and Exchange Board of India (SEBI) for introducing Derivatives on Nifty Next 50 index (NIFTYNXT50). Scheduled for launch on April 24, 2024, these contracts mark a significant expansion in NSE’s portfolio.

Contract Details and Expiry Cycle

The exchange plans to roll out three serial monthly index futures and index options contract cycles. These cash-settled derivatives contracts are slated to expire on the last Friday of the expiry month, offering traders and investors a structured and predictable trading environment.

Understanding Nifty Next 50 Index

The Nifty Next 50 Index, comprising 50 companies from the Nifty 100 after excluding the Nifty 50 constituents, holds sway over diverse sectors. As of March 2024, its top sectors include financial services, capital goods, and consumer services, each with significant weightage. Introduced on January 1, 1997, with a base date of November 03, 1996, and a base value of 1000, the index has evolved over the years, adopting methodologies to enhance representativeness and efficiency.

Market Impact and Correlation

With a market capitalization of Rs 70 trillion, the index constituents command a substantial portion of NSE’s listed stocks. Moreover, the aggregate daily average turnover of these constituents in FY24 underscores their liquidity and trading activity. Notably, the Nifty Next 50 index exhibits correlations with other indices, including a 71% correlation and a Beta value of 0.95 with the Nifty 50 Index and a 90% correlation with the Nifty Midcap 150 index in the financial year 2024.

Expanding Derivative Landscape

NSE’s foray into derivatives on the Nifty Next 50 Index follows its successful introduction of derivatives on other indices, such as the Nifty Midcap Select Index (MIDCPNIFTY) in January 2022 and derivatives on Nifty Financial Services index (FINNIFTY) in January 2020. These offerings have garnered significant traction, with notable peaks in futures turnover, option contracts traded, and option premium turnover.

Continued Growth in Commodity Derivatives

In addition to equity derivatives, NSE has witnessed robust growth in its commodity derivatives segment. Noteworthy milestones include the substantial trading volume in options of WTI Crude Oil Futures, highlighting the exchange’s diversified product portfolio and its appeal to a wide range of market participants.

As NSE continues to innovate and expand its offerings, the introduction of derivatives on the Nifty Next 50 Index underscores its commitment to providing investors with diverse and efficient avenues for managing risk and enhancing returns in the dynamic Indian financial markets.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.