Specific Investor Scenario
If you track the Indian market, you definitely follow the Nifty 50 and Sensex. But have you ever noticed a ticker for “SX40”? Is it just a copy of the other indices, or does it offer a different perspective on the market? How are the companies inside it selected?
Quick Answer
The SX40 is a free-float market capitalization-weighted index made up of 40 large-cap, liquid companies listed on the Metropolitan Stock Exchange.
Official Fact: According to the MSEI Index Methodology, the index is designed to measure the performance of the most liquid and large-cap companies in India, ensuring sectoral representation that reflects the national economy.
Regulatory Context
Like all major indices in India, the maintenance of the SX40 is subject to SEBI’s guidelines on Index Governance. The selection criteria must be objective, based on parameters like market capitalization, trading frequency, and positive net worth. The index is rebalanced semi-annually to ensure it accurately reflects the current state of the market.
How the SX40 Works
| Feature | SX40 Index |
|---|---|
| Launch Date | February 9, 2013 |
| Number of Constituents | 40 |
| Calculation Method | Free-float Market Capitalization |
| Base Year | 2010 (Base Value 1,000) |
| Review Frequency | Semi-Annual |
Selection Criteria
To be included in the SX40, a company must:
- Be among the top 100 stocks by full market capitalization.
- Rank among the top 50 by free-float market capitalization.
- Pass liquidity tests based on trading frequency (typically traded on 90% of days).
- Have a positive track record of financial performance.
Comparing SX40 with Nifty and Sensex
While many of the same “Blue Chip” companies (like Reliance, HDFC Bank, and TCS) appear in all three indices, the SX40’s unique count of 40 stocks offers a middle ground between the Sensex (30) and the Nifty (50).
- Sectoral Balance: MSEI ensures that no single sector dominates the index, providing a broader view than a concentrated 30-stock index.
- Liquidity Focus: Stocks in the SX40 must meet strict turnover requirements, making it a reliable indicator for derivatives trading.
Other MSEI Indices
Beyond the SX40, the exchange maintains several other thematic and sectoral indices (though some may have varying levels of live activity):
- SX AllShare: A broader market index.
- Sectoral Indices: Aimed at tracking IT, Financials, and Energy sectors separately.
Action Items for Investors
- Compare Returns: Use the SX40 to cross-verify if a market move is consistent across different exchanges.
- Benchmark Your Portfolio: If you hold large-cap stocks, see how they rank within the SX40 components.
- Wait for Volume: If you plan to trade derivatives or ETFs linked to the SX40, check the current live trading data for liquidity.
Verification Link
Real-time SX40 Index value and components: msei.in/Markets/Indices/SX40
Verify current status at nseindia.com, bseindia.com, or msei.in before trading.