India Index Services & Products Limited (IISL), the indexing arm of NSE group, has rolled out the NSE Quality 30 index, the latest addition to its existing suite of strategy based indices, as it aims to capitalise on the current factor based investment trend.
The NSE Quality 30 index tracks the performance of stocks from the top 30 companies chosen from a pool of the 100 largest and liquid securities listed on the National Stock Exchange of India (NSE). Quality stocks will be selected on the basis of a quality score which is based on high return on equity (ROE), low debt-to-equity ratio and year-on-year growth in profit after tax (PAT) over the last three years.
The launch, said IISL in a statement, responds to the increased demand for strategy indices in the Indian market “which is in line with the practices in global investment community”.
“There is an increasing interest amongst product manufacturers to launch strategy/smart beta based products for investments into Indian equity markets,” said a NSE spokesperson. “This adds to our existing family of 13 strategy indices.”
Apart from complimenting other strategy based IISL indices, NSE Quality 30 Index will serve as a benchmark for investors looking to invest in companies with durable business models resulting in sustained profits and high return on equity.
The NSE Quality 30 Index will be available for licensing for the launch of financial products including exchange-traded funds (ETFs) and structured products. Equity ETFs have seen good growth in India in the last one year, said the NSE spokesperson, adding that asset under management (AUM) of equity ETFs has grown to US$1bn as on February 26, 2015 from US$150m as of March 31, 2014.
“IISL is also seeing interest for issuances of structured products based on IISL’s equity indices from global players,” said the spokesperson.
The NSE Quality 30 includes stocks from eight industries with IT having the highest weight of 32%, followed by consumer goods (23%), automobile (18%), pharma (14%), cement & cement products (6%), metals (5%), energy (1%) and industrial manufacturing (1%). The Top 10 stocks in the NSE Quality 30 index will capture 65.6% of total weight. Constituent weights are capped at 10% at the time of rebalancing, change in investible weighted factor (IWF), scrip change and during quarterly weight realignments. The index will be rebalanced on annual basis in October.
IISL manages and calculates over 80 equity indices comprising broad-based benchmark, sector and customised indices.
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