Nifty Smallcap 100

What is the Nifty Smallcap 100?

The Nifty Smallcap 100 is a broad market stock index that tracks the performance of 100 small-cap companies listed on the National Stock Exchange (NSE). Small-cap companies are those that are ranked 251 and above in terms of market capitalisation. The Nifty 100 Smallcap index represents leading small-cap companies across various sectors and serves as a benchmark for small-cap equity investments in the Indian stock market.

The constituents of the NIFTY Smallcap 100 index are selected based on their average daily traded value, market capitalization, and other liquidity criteria. The index is reviewed and rebalanced semi-annually on January 31 and July 31 of every year. During the review, companies that have grown significantly in market capitalization are removed from the index and replaced by smaller companies that meet the inclusion criteria. This is done to ensure that the index accurately represents the small-cap segment of the Indian equity market.

Investors, fund managers, and market analysts widely use the Nifty Smallcap 100 as a benchmark for evaluating the performance of small-cap equity investments. The index has a total of 100 small-cap companies across 19 different sectors. The top five sectors by weight are financial services, capital goods, information technology, healthcare, and automobiles and auto components. The top 10 constituents from the Nifty Smallcap 100 stocks list, in order of their weight, are listed below.

How is the Nifty Smallcap 100 Value Calculated?

Calculating the index value of the Nifty Smallcap 100 index is a two-step process. The first step involves computing the free-float market capitalisation of each of the index’s constituents. The second step involves computing the index value. Here is a brief overview of how the index value is computed.

Step 1: Calculation of Free-Float Market Capitalisation

The current market price of each stock is multiplied with its number of outstanding shares and its free-float factor to arrive at its free-float market cap. Let us look at the mathematical formula used for computation of this value.

Free-Float Market Cap = [(Current Market Price x Number of Outstanding Shares) x Free-Float Factor]

Step 2: Calculation of Index Value

Once the free-float market cap of each of the index’s constituents is determined, the following mathematical formula is used to compute the value of the Nifty Smallcap 100.

Nifty Smallcap 100 Value = [(Free-Float Market Cap of All Stocks * Base Index Value) ÷ Base Market Cap]

Here, the base index value is 1,000. The base market cap of the index, meanwhile, is the market capitalisation of all of the index’s constituents as of the base date of January 1, 2004.

How Can You Invest in Nifty Smallcap 100 Stocks?

The best way to gain exposure to the constituents of the Nifty Smallcap 100 index is by investing in exchange-traded funds (ETFs) or mutual funds that track the index. These investment products enable investors to diversify their portfolios and participate in the potential growth opportunities offered by small-cap companies without having to individually select and manage a portfolio of small-cap stocks.

Alternatively, if you wish to gain exposure to just a select set of stocks in the Nifty Smallcap 100 index, you could consider investing in them individually. However, it is important to note that opting to invest in the index’s stocks individually may not provide the same level of diversification or exposure that you would have otherwise gotten by investing in the Nifty Smallcap 100 index funds.

Factors Influencing the Nifty Smallcap 100 Index

The performance of the Nifty Smallcap 100 index is influenced by a wide range of micro and macro factors. Here are the top four factors that could potentially impact the index.

Economic Growth

Small-cap stocks are very sensitive to changes in the economy. A strong economic environment with rising consumer demand, increased business spending, and favourable government policies are likely to have a major positive impact on the Nifty Smallcap 100 index. On the other hand, weak economic conditions could lead to the index underperforming.

Sectoral Dynamics

The Nifty Smallcap 100 index has stocks from as many as 19 different sectors of the Indian economy. Changes in sector-specific factors, such as industry trends, regulatory changes, and competitive dynamics, can positively or negatively influence the performance of the overall index.

Investor Sentiment

The prevailing investor sentiment is another major factor that can potentially influence the performance of the Nifty Smallcap 100 index. Optimistic investor sentiment towards small-cap stocks can drive increased demand and boost the index, whereas negative sentiment can lead to increased selling pressure and consequently negative performance.

Corporate Earnings

The financial performance of the small-cap companies in the Nifty 100 Smallcap index could also influence its overall direction. Strong earnings growth and attractive valuations of the index’s constituents will often lead to a positive impact on the index, whereas earnings that fall short of expectations and overvalued stocks may put pressure on the index.

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