NDEX & FINNDEX Equity Indices

Why in news?

The National Commodities and Derivatives Exchange (NCDEX) will launch NDEX and FINNDEX new Equity Indices to track Indian Stocks.

• National Commodity and Derivatives Exchange (NCDEX) – It is India’s premier, technology-driven agricultural commodity exchange.
• Regulated by – Securities and Exchange Board of India (SEBI).
• NCDEX serves as the primary national marketplace for transparent price discovery and risk mitigation (hedging) for India’s vast agricultural sector.
• Headquarter – Mumbai.
• Objective – The move marks an expansion beyond its traditional focus on agricultural commodities and aims to provide investors with new ways to track the Indian stock market.
• NDEX – It tracks 20 large and actively traded Indian companies.
• FINNDEX – It will focus on 15 companies from the financial sector, excluding insurance companies.
• Working – NDEX will include 20 large and actively traded stocks selected from a group of the top 60 companies. FINNDEX, meanwhile, will track 15 financial sector companies, excluding insurers.
• Launch – NCDEX is targeting the first quarter of FY28 for the official launch of the indices. This corresponds to April–June 2027, assuming the timeline follows India’s financial year.
• Rule-based system – Both indices will use a rule-based system to select stocks and decide their weight in the index.
• The exchange is also exploring the launch of mutual funds, exchange-traded funds (ETFs) and, later, futures and options contracts linked to these indices.
• Unique Multi-Factor Methodology – Both indices will follow a multi-factor approach - means the selection and weighting of stocks will depend on four factors rather than mainly on the size of a company in the stock market.

• Free-float market capitalisation helps measure the market value of shares of a company that are available for trade.
• Average daily traded value helps measure the average value of the shares traded daily.
• Beta helps measure how much a stock is expected to react to the market, and
• Volatility measures how much a stock’s price fluctuates.
• The combination of all four helps NCDEX to take into account a company’s market value, average traded value while developing its indices.
• Reason for introducing new indices – NCDEX believes that traditional benchmarks such as the Nifty 50 and Sensex are largely driven by free-float market capitalization.
• The new indices aim to provide a broader measure of market activity by also considering trading volume, price sensitivity (beta), and volatility.

Reference

IIFL | NCDEX Launches NDEX and FINNDEX