Introduction

The Nifty100 Quality 30 index is a unique stock market index that aims to capture the performance of the top 30 companies within the Nifty 100 index, based on their quality scores. These quality scores are determined by evaluating three key financial metrics: Return on equity (ROE), debt-to-equity ratio (D/E), and average change in earnings per share (EPS).

The index selects 30 companies from the Nifty 100 based on their quality scores. The primary objective of the Nifty100 Quality 30 index is to provide investors with exposure to high-quality companies that have a durable business model and are expected to deliver sustained growth over the long term. The index comprises 30 companies that are selected based on their quality scores. These companies are typically leaders in their respective industries and have a strong track record of financial performance.

Eligibility criteria for Nifty100 Quality 30 index

The Nifty100 Quality 30 index is designed to include the top 30 companies from the Nifty 100 Index based on their quality scores. As mentioned above, these scores are determined by evaluating three key financial metrics: return on equity (ROE), debt to equity ratio (D/E), and average change in earnings per share (EPS). Here are the detailed eligibility criteria:

1. Universe of stocks

• Nifty 100 membership: Only stocks that are part of the Nifty 100 Index at the time of review are eligible for inclusion in the Nifty100 Quality 30 index.
• Minimum listing history: Stocks must have a minimum listing history of one year to be considered.
• Derivative segment availability: Stocks should be available for trading in the derivative segment (Futures & Options) to ensure liquidity.

2. Financial metrics

• Return on equity (ROE): This metric measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested. A higher ROE indicates better financial performance.
• Debt-to-equity ratio (D/E): This ratio indicates the relative proportion of shareholders' equity and debt used to finance a company's assets. A lower D/E ratio suggests a more financially stable company with less reliance on debt.
• Average change in earnings per share (EPS): This metric shows the average growth in a company's earnings over a specified period. Consistent EPS growth indicates a company's ability to generate profits over time.

3. Quality score calculation

• Z-score calculation: For each eligible stock, a Z-score is calculated based on the ROE, D/E ratio, and EPS growth variability over the previous five years. The Z-score helps rank companies based on their financial quality.

4. Selection process

• Top 30 companies: The top 30 companies with the highest quality scores are selected to be part of the Nifty100 Quality 30 index.
• Weightage: The weight of each stock in the index is based on a combination of the stock's quality score and its free-float market capitalisation.

5. Index review and rebalancing

• Semi-annual review: The index is reviewed and rebalanced semi-annually to ensure that it continues to represent the top-quality companies within the Nifty 100 Index