Stock Exchanges Launch Niche Indices: Few Find Fame

Stock exchanges have introduced numerous niche indices, but a significant number fail to become popular investment benchmarks. These specialized indices, focusing on narrow sectors or themes, often lack meaningful investor participation or tracking by asset management companies (AMCs). For instance, the Nifty Waves and Nifty Sugar and Ethanol indices have not attracted substantial fund launches.

While the National Stock Exchange (NSE) has 61 niche indices, only 23 are currently used as benchmarks or tracked by passive funds. Similarly, the Bombay Stock Exchange (BSE) has only seven of its 26 niche indices serving this purpose. Experts suggest that the specialized nature and potential high risk of these indices deter AMCs from launching investment products.

However, the utility of an index extends beyond passive investments. NSE Indices highlights that indices can serve critical roles in portfolio construction, performance measurement, and research. Success is assessed on multiple dimensions, not solely by the number of passive funds tracking them, reflecting a global trend where many indices are maintained for diverse purposes.

There's often a lag between an index's launch and the creation of associated investment products. Initially, family offices and institutions might track them, with exchanges potentially encouraging mutual funds to launch ETFs or index funds later if demand grows. AMCs evaluate factors like liquidity and rebalancing before committing to a niche fund.