The National Stock Exchange of India (NSE) has started trading derivatives on the Nifty Next 50 Index (NIFTYNXT50) today, with permission from the Securities and Exchange Board of India (SEBI).
Financial instruments having fixed terms and predefined expiration dates, known as derivative contracts, can be based on a variety of underlying assets, including equities, commodities, currencies, indexes, exchange rates, and interest rates.
NSE, recognized as the world’s leading derivatives exchange in 2023 based on traded contracts, will introduce three serial monthly cycles of index futures and index options contracts. These cash-settled derivatives will reach maturity on the last Friday of the expiration month.
A SEBI study highlighted that in 2022, 9 out of 10 individual traders incurred losses in the Future & Option segment of derivatives, with an average loss of Rs1.1 lakh. Additionally, the study noted that 90% of active traders suffered an average loss of Rs1.25 lakh.
The Nifty Next 50 Index comprises 50 companies from the Nifty 100, excluding those in the Nifty 50. As of March 2024, the index’s major sector representation includes financial services (23.76%), capital goods (11.91%), and consumer services (11.57%).
Introduced on January 1, 1997, with a base date of November 3, 1996, and a base value of 1000, the index constituents collectively hold a market capitalization of Rs 70 trillion, representing about 18% of the total market capitalization of NSE-listed stocks. In the 2023-24 fiscal year, the aggregate daily average turnover of index constituents stood at Rs 9,560 crores, accounting for approximately 12% of cash market turnover.
The Nifty Next 50 index demonstrates a 71% correlation and a Beta value of 0.95 with the Nifty 50 Index. In the financial year 2024, it showed a 90% correlation with the Nifty Midcap 150 index. Over recent years, NSE has expanded its derivatives offerings, introducing derivatives on the Nifty Midcap Select Index (MIDCPNIFTY) in January 2022 and derivatives on the Nifty Financial Services index (FINNIFTY) in January 2020 in the equity derivatives segment, along with multiple products in the commodity derivatives segment.