The National Stock Exchange’s subsidiary, NSE Indices Limited, this week introduced a new thematic index - Nifty India Tourism Index. According to NSE, the index will aim to capture the performance of travel and tourism-related stocks within the Nifty 500 Index. “This new index underscores the Indian government’s ongoing efforts to bolster tourism, which contributes significantly to the nation’s economy, accounting for approximately $199.6 billion to the GDP,” NSE said, while launching the index.

Launching  the Nifty Tourism index will facilitate the creation of products that create opportunities  for asset managers to invest in the tourism industry, thereby providing valuable tools for investors aiming to capitalise on the growth and resilience of this vibrant industry.

Similarly, a few days back, the bourse launched another interesting theme-based index: the Nifty EV & New Age Automotive index. The index aims to track the performance of companies that form a part of the EV ecosystem or are involved in the development of new-age automotive vehicles or related technology, the NSE said.

“The Government of India has always been at the forefront of framing policies related to e-vehicles (EV) adoption in the country to promote India as a manufacturing destination so that EVs with the latest technology can be manufactured in the country and attract investments in the e-vehicle space by reputed global EV manufacturers, thereby giving a boost to the Make in India initiative,” NSE said.

The premier bourse has been at the forefront of launching equity indices in the last few months. In fact, in the last six months, it had launched nine indices that included Nifty200 Value 30 Index, Nifty500 LargeMidSmall Equal-Cap Weighted index, Nifty500 Multicap India Manufacturing 50:30:20 and Nifty500 Multicap Infrastructure 50:30:20 index

Investment tools

Gone are the days when a stock index was used only to represent the mood of the market. Instead, in recent years, indices have become direct investment tools, with index funds and index derivatives riding on them. Index funds are mutual funds designed to track the returns of a market index. Index derivatives allow investors to hedge their risk exposure to a market. According to the NSE, these applications are now a multi-trillion dollar industry worldwide, and they are linked up to market indices.

According to the Association of Mutual Funds in India, exchange traded funds manage ₹6.64-lakh crore and index funds ₹2.13-lakh crore as of March 2024. Share of passive funds rose to 17.5 per cent in overall assets under management of MF industry in March 2024, from a mere 5.8 per cent in 2019.

Need of the hour

Launching various indices is the need of the hour, as passive investment is growing exponentially. This will also help investors overcome human bias. Of course, sectoral themes can be risky and highly cyclical. Despite their a higher risk, long-term investors can benefit from investing through an index, as the exchange will constantly monitor the constituents and remove the stocks that have any corporate governance issues or are underperforming over a long period.

Instead of breaking  one’s head and deciding which stock to bet in a theme, thematic indices enable investors to ride the wave. For example, in the US markets, thematic indices based on the FAANG stocks enabled investors to ride the entire digital wave in the previous decade. Similarly, themes around Magnificent Seven stocks are getting popular as the AI wave gains prominence.

Besides, whenever a perceived sunrise sector emerges, a set of companies has always changed their names to align with the concept, capitalising  on the momentum and targeting  gullible investors. An index will definitely help investors identify  good stocks in the particular theme.

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