The National Stock Exchange (NSE) has launched three strategy-based indices— the CNX low volatility index, the CNX high-beta index and the CNX alpha index. In contrast to broad-based market and sector indices that group companies by size or industry, strategy indices reflect the performance of a rule-based investment strategy.
The indices, as their respective names suggest, would weigh the performances of the least volatile, high-beta and alpha securities listed on NSE. High-beta and alpha indices simply weigh volatility, albeit with a few more criteria. Though such indices are tracked by fund managers in the US and Europe, there, the strategies are based on multiple assets, including commodities and interest rate futures and trade is usually structured for institutional clients looking to invest their money in a different asset class.
The NSE has set several criteria for stocks to be included in these indices. These may benefit fund managers, as exchange-traded funds may be launched, based on these indices. Sources said the exchange also planned to launch derivative products based on these indices.
To be included in these indices, companies must be ranked within the NSE’s top 300, by average free-float market capitalisation and aggregate turnover for the last six months. Also, these companies would have to be listed at least for a year, have an investable weight factor of at least 10 per cent and positive net worth. The volatility, beta and alpha of eligible securities would be calculated using one-year trailing prices (adjusted for corporate actions) and assigned ranks. The top 50 securities ranked by low volatility, high beta and high alpha would be part of the respective indices.