Big News For F&O Traders! NSE To Launch Derivatives On Nifty Next 50 From April 24; Key Highlights!

The National Stock Exchange (NSE) has announced that it has received market watchdog Sebi's approval for Derivatives on the Nifty Next 50 index (NIFTYNXT50). NSE will launch these contracts on April 24, 2024.

As per the statement, the exchange will offer 3 serial monthly index futures and index options contract cycles. The cash-settled derivatives contracts will expire on the last Friday of the expiry month.

Sriram Krishnan, Chief Business Development Officer, NSE said "The introduction of derivatives on the Nifty Next 50 index (NIFTYNXT50) will well complement the existing index derivatives product suite.

Krishnan added, "The Nifty Next 50 index will represent the space between the Nifty 50 index comprising the top large & liquid stocks and the Nifty Midcap Select index comprising the top large & liquid mid-capitalised stocks".

Key Features of the Nifty Next 50 Index:

Currently, the index represents 50 companies from Nifty 100 after excluding the Nifty 50 companies. As of March 2024, the index had top sector representation from the financial services sector with 23.76% weight followed by the capital goods sector with 11.91% and consumer services with 11.57%.

It was first introduced on January 1, 1997, with the base date and base value being November 03, 1996, and 1000 respectively. Over the years, the index methodology has undergone revision.

As of now, the market capitalization of index constituents stands at Rs 70 trillion representing about 18% of the total market capital of the stocks listed on NSE as of March 29, 2024. The aggregate daily average turnover of index constituents stood at Rs 9,560 crores accounting for around 12% of cash market turnover in FY24.

Also, the Nifty Next 50 index has a 71% correlation and a Beta value of 0.95 with the Nifty 50 Index. It has a correlation of 90% with the Nifty Midcap 150 index in the financial year 2024.

Moreover, in recent years, the Exchange introduced 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 and multiple products in the commodity derivatives segment.

Further, data from NSE, revealed that the MIDCPNIFTY derivatives have seen a peak at Rs 2,888 crores of futures turnover, 16.7 crores of option contracts traded and option premium turnover of Rs 17,283 crores. The FINNIFTY Derivatives has seen a peak at Rs 1,288 crores of futures turnover, 38.2 crores of option contracts traded and an option premium turnover of Rs 32,994 crores. In the commodity derivatives segment, the Option of WTI Crude Oil Futures has seen a peak of 1,02,304 contracts.

What Are Derivatives In Stock Market?

As per Ventura Securities Blog, in essence, derivatives are financial contracts derived from the value of an underlying asset. This underlying asset can be a stock, bond, commodity (like oil or gold), currency, or even an index like the Nifty 50. The value of the derivative contract fluctuates based on the price movements of the underlying asset.

Types of derivatives:

Ventura highlighted that the derivatives market offers a variety of instruments, each serving a specific purpose. As per the brokerage they are:

- Futures trading: These are agreements to buy or sell a specific underlying asset at a predetermined price on a specific future date. Futures contracts are used for hedging (protecting against price fluctuations) and speculation on future price movements.

- Options trading: These contracts give the buyer the right, but not the obligation, to buy or sell the underlying asset at a certain price by a certain date. Options offer investors the flexibility to profit from price movements without the obligation to buy or sell the underlying asset.

- Swaps: These are agreements between two parties to exchange cash flows based on an underlying asset or index. Swaps can be used for various purposes, such as managing interest rate risk or speculating on changes in exchange rates.

- Forward Contracts: Similar to futures contracts, forwards are customised agreements to buy or sell an underlying asset at a predetermined price on a future date. However, forward contracts are not traded on an exchange and are negotiated directly between two parties.