NIFTY SMLCAP 100

What Are Smallcap Stocks?

Smallcap stocks can be defined as a group of listed stocks that are ranked 251 and below on the stock exchanges. As the name suggests, these stocks have a market capitalisation value lower than 5000 crores; hence, they are considered riskier than largecap and midcap stocks; however, alongside the risk, they possess substantial growth potential and can offer multifold returns to investors in the long term. The underlying companies of smallcap stocks are newly established and listed companies that do not have a long history of positive performance and operate in their initial stages.

• Stocks ranked below 251 on the stock exchange are known as smallcap stocks. 
• Smallcap stocks represent companies which are not well-established and do not have a positive performance record. 
• Investing in smallcap stocks can be risky, but they have the potential for multifold returns in the long term. 

What Is The Nifty Smallcap 100 Index?

The National Stock Exchange (NSE) of India launched the Nifty Smallcap 100 index on 30th March 2011 through its wholly owned subsidiary NSE Indices Limited (formerly known as India Index Services & Products Limited). This index is responsible for evaluating the performance of the top 100 smallcap stocks listed on the National Stock Exchange. The stocks included in the Nifty smallcap 100 index are ranked from 251 to 350 on the market according to their market capitalisation value. The index represents and tracks the performance of the top 100 tradable smallcap stocks, thus portraying the real-time performance of the underlying segment. The index works as a tracker of the smallcap segment, which helps the investors gauge the overall sentiment or trend and make a well-informed investment decision.

• The Nifty Smallcap100 index is a broad-based Nifty index that tracks the performance of the top 100 smallcap stocks. 
• Smallcap stocks that ranked from 251 to 350 on the market are included in the index. 
• This index helps investors to analyse the smallcap segment and make better investment decisions. 

Eligibility For Becoming Constituents Of The Nifty Smallcap 100 Index

1. All the constituents of the Nifty Smallcap 50 stocks are included in the index. 
2. The stocks must be listed on the National Stock Exchange.
3. Other than the Nifty 50 index stocks, the remaining stocks are included if their rank based on average daily turnover is among the top 70 from the top 150 constituents selected based on full market capitalisation in the Nifty smallcap 250 index. 
4. Constituents will be excluded if they get excluded from the smallcap 250 index or 
5. If the rank falls below 180 from Nifty Smallcap 250 constituents based on the full market capitalisation or; 
6. If the rank falls below 130 from the top 180 constituents of the Nifty Smallcap 250 index based on average daily turnover, even if they are included in the top 180 based on the full market capitalisation.

The index is reviewed and rebalanced semi-annually, with cutoff dates of 31 January and 31 July each year. During rebalancing, stocks are removed or added to the index, subject to the above-mentioned criteria. 

Some More Popular Nifty Smallcap Indices 

1. Nifty Smallcap 50 - The Nifty Smallcap 50 index is a broad market index that tracks the performance of the top 50 smallcap companies listed on the National Stock Exchange. The stocks of this index are selected based on the 6-month average free-float market capitalisation from the top 150 smallcap companies selected based on both the 6-month average daily full market capitalisation and average daily turnover from the Nifty Smallcap 250 Index. 
2. Nifty Smallcap 250 - Nifty Smallcap 250 index is an important market index launched by NSE Indices Limited on 1st April 2016. It tracks the performance of the smallcap stocks ranked from 251 to 500 on the Nifty 500. The index provides a broader outlook on the performance of the 250 NSE-listed small companies. 

What Are The Historical Returns Of The Nifty Smallcap 100 Index?

Many beginner investors sometimes prefer to invest in smallcap stocks to gain quick returns from the price volatility of these stocks. However, doing so may also lead to high losses in the short term because smallcap stocks are traded in high volume, making it easier for traders to manipulate their prices.

However, when if investors make the right long-term picks in the smallcap category, they can expect strong growth and great returns on their investments, leading to robust portfolio building. Because of their lower market capitalisation, small-cap stocks possess huge potential for price appreciation, which can be experienced over a longer investment duration. Thus, investors who have a longterm investment horizon should consider these stocks. 

To put all this in perspective, you can look at the table below, which shows the historical return generated by the Nifty Smallcap 100 index in previous years. 

By looking at the above data, you can observe that the index has generated substantial returns for its investors over various time frames, which clearly indicates that its constituents, i.e. smallcap stock, have performed well in the long term. However, it is important to note here that investors should not make an investment decision solely based on historical returns because these figures are testimonials only for the past performance of the index. 

Investors should consider their risk-taking capability and perform their own research before investing in smallcap category. 

• Smallcap stocks are subjected to high price volatility in the short term, which can lead to losses. 
• Beginner investors should invest or trade in smallcap stocks according to their risk tolerance.
• By looking at the past performance of the Nifty Smallcap 100 index stocks, investors can analyse the performance of the top 100 smallcap stocks. 

Key Takeaways

• Smallcap stocks are defined as the group of listed shares with a market capitalisation of less than 5000 crores and are ranked 251 and lower on the stock market. 
• The underlying companies of these stocks are not well-known names and do not have stable performance records.
• To track the performance of smallcap segment, NSE Indices Limited launched the Nifty Smallcap 100 index on 30th March 2011. 
• The Nifty Smallcap 100 index evaluates the performance and behaviour of the top 100 smallcap stocks ranked from 251 to 350 on the market. 
• This index is computed based on the free-float market capitalisation method. It is also used to launch index funds, ETFs and structured products. 
• Other than the Nifty Smallcap 100 index, NSE Indices Limited have also launched other indices, such as Nifty Smallcap 50 and Nifty Smallcap 250, which track the performance and overall health of the smallcap segment.