NIFTY ALPHA 50 (NIFTY ALPHA 50) live share price today at NSE

Nifty 50 Alpha - A Brief Introduction

The Nifty Alpha 50 Index is a strategic index developed and managed by NSE Indices Limited (previously known as  India Index Services & Products Limited) under the Nifty brand name. The Nifty 50 Alpha Index was primarily constituted to provide a market overview from a strategic point of view. It is similar to indices like the Nifty 50 or Sensex; however, the difference arises because of the stock selection criteria and calculation method. 

The Nifty 50 Alpha index focuses on tracking the behaviour and performance of 50 NSE-listed stocks that have high alpha values. The 50 stocks that form the index's constituents are selected based on market capitalisation, liquidity, and other factors. 

Out of all these, the primary selection criterion is the stock’s alpha values, also known as the Jensen Alpha. This value is used to assign ranks to the index’s constituents in the descending order of alpha values. We will delve more into the concept of Jensen alpha, but before that, let us discover more about the Nifty Alpha 50 Index.

Nifty Alpha 50 Stocks - Selection Criteria

Read the points below to learn about the eligibility criteria for stock selection in the Nifty Alpha 50 Index:

1. The company must be listed on the National Stock Exchange (NSE) and domiciled in India. NSE-listed companies here include listed & traded and not listed but permitted to trade.
2. The company must rank within the top 300 based on the average free float market cap and average daily turnover for the last six months. 
3. The company must have a listing history of 1 year and a trading frequency of 100% within the last 1-year period. 
4. The constituents' Alphas are calculated based on the trailing 1-year prices adjusted for corporate actions. 
5. The index constituents are weighted in descending order according to their alpha values within the index. 

What is Alpha Value or Jensen Alpha?

Alpha (α) refers to the excess return generated over the returns of a benchmark. It measures a portfolio's performance in terms of its generated return compared to the expected or estimated return. 

Alpha is a very helpful metric for investors, fund managers, or traders because it allows them to measure the performance of their funds or portfolios relative to a benchmark return. 

The Jensen Alpha (α) is calculated using the Capital Asset Pricing Model (CAPM), which considers the Beta or systematic risk and the average market return while deriving the alpha value. 

Alpha Value Formula = R(i) + B X [R(m) - R(f)]

R(i) = Return on the portfolio 

B = Beta of the portfolio relative to the chosen benchmark  index 

R(m) = Return of the chosen benchmark index 

R(f) = risk-free rate of return

Nifty Alpha 50 Vs Nifty 50 Index 

The Nifty 50 index and the Nifty Alpha index are quite similar in their constituent structure because both of these indices are formed with 50 NSE-listed stocks and provide a snapshot of the overall market sentiment. However, there are some key differences between these indices, which are mentioned below:

Nifty 50 

1. The Nifty 50 falls under the broad-based index category. 
2. It tracks the performance of the top 50 large-cap companies.
3. The stocks within the Nifty 50 index are weighted as per their free float market cap. 
4. The Nifty 50 index is calculated based on the free-float market capitalisation method. 

Nifty Alpha 50 

1. The Nifty Alpha 50 index falls under the category of strategy indices. 
2. It is calculated based on the divider methodology. 
3. The index constituents are weighted in descending order per their alpha values.
4. Nifty Alpha 50 tracks the performance of 50 NSE-listed companies with high alpha values. 

From the differences mentioned above, we can see that the Nifty Alpha 50 and Nifty 50 Index are both key market indices of the Indian stock market. However, the Nifty 50 is a much broader index and is tracked by a larger set of investors and other market participants compared to the Nifty 50 Alpha index. Moreover, the constituents of these indices are selected through different methods. 

How to Invest in the Nifty Alpha 50 Index?

You can invest in the Nifty Alpha 50 Index through:

Exchange Traded Funds (ETFs) 

Exchange Traded Funds (ETFs) are tradable financial instruments structured to replicate a market index's performance and behaviour. ETFs are managed by professional fund managers who actively manage these funds so that the returns of these instruments are in sync with those of the benchmark index. 

Index Funds 

Index funds are a type of mutual fund that a passively managed funds that work in a similar manner to Exchange Traded Funds (ETFs). Index funds are benchmarked and structured in line with market indices. Investors use index funds because they carry less risk and provide similar returns to those of indexes. 

Exchange Traded Funds (ETFs) and index funds operate similarly. However, ETFs are tradable instruments, which means they can be bought and sold on the stock exchanges like equities. On the other hand, index funds are not actively traded on exchanges.  

Besides the methods mentioned above, the Nifty Alpha 50 index can also be invested in using the direct method. Under this method, investors must buy all the stocks included in the index separately. However, this method is expensive and time-consuming, making it a difficult method of investing in the index. 

Key Takeaways on The Nifty Alpha 50 Index  

• The Nifty 50 Alpha Index is a strategy index of the National Stock Exchange (NSE) launched on 19th November 2012 by NSE Indices Limited. 
• It tracks the behaviour of the 50 NSE-listed companies weighted per their Alphas (α) values. This means that the stock with the highest alpha is assigned the maximum weight. 
• Alpha, or the Jensen Alpha (α), means the excess or abnormal return generated by an investment portfolio compared to a benchmark portfolio. 

Investments in the Nifty Alpha 50 index can be made through Exchange Traded Funds (ETFs) and index funds.