Motilal Oswal launched Nifty Capital Market ETF on March 13, 2025. This fundtracks the Nifty Capital Market Index. The index has undergone a sharp correction in its very early stages and to call a bottom at this stage may be premature. The assumptions underlining the industry tailwinds can also be reassessed at this juncture.
But a fractional exposure, similar to a foot in the door, can be considered by investors with a high-risk appetite especially considering the correction and growth drivers. Though both factors can be contested, certainty and opportunity are rarely together.
Here we look at the index and other funds that are available in the sector.
Nifty Capital Market Index
The index was launched in September 2024, which incidentally was the month when indices reached their peaks and started a downward journey since then. Beyond the ominous timing, the index itself served a purpose. Indian’s savings are increasingly approaching financialisation route, beyond the traditional gold, real estate and FDs. The capital markets ecosystem was bound to benefit, and has done so.
The fund invests in 20 of the largest Nifty-500 companies that are engaged in asset management, stock broking, exchanges and data platforms, ratings agencies, depositories, distributors and other capital market services. The index currently consists of BSE (22 per cent), HDFC AMC (15 per cent), MCEX (10 per cent), and others (see table).
The index has a 5-year return (notional as the fund was launched in September 24) of 27 per cent CAGR which beats Nifty-50’s 16 per cent CAGR. Financialisation of savings, a big surge in demat accounts, SIPs, MF folios and launches have supported the industry growth in this phase. But the index is in the midst of a correction and year to date has corrected by 23 per cent compared to Nifty-50’s 6 per cent correction till Feb-28, 2025.
The focus will be on return of investing volumes to support profitability from here. The industry relies on volumes and the sector cost structure is tied to certain amount of volumes above which the companies enjoy profitability. In the upswing of last five years, the cost structure may have been anchored to erstwhile trading and investing volumes. If the market participants are slow to catch up or a section temporarily avoids investing, then the companies’ profitability will be impacted till a turnaround happens.
Other funds and investment
There are two other mutual funds covering the index, Tata Nifty Capital Markets Index Fund and Motilal Oswal Nifty Capital Market Index Fund – the AMC launching the ETF. The Tata Fund was launched in October 2024 and has declined by 21 per cent till now and MOSL fund launched in December 2024 has declined by 30 per cent till now.
The sector is clearly in correction territory and in such situations to call a bottom would most likely be premature. But investors with a long-term view and high risk appetite should consider a small exposure to the sector in the current environment. In the longer term, financialisation of savings will be the continuing theme. Powered by rising middle class and new entrants to the middle class the basic industry driver has not been dented. The rate of growth may be monitored, but the direction should be positive. The recent disruption is also an opportunity for the industry (which has only seen a bull run in the past five years) to realign its cost structures for volatility.
While further decline in capital markets sector cannot be ruled out, the current contraction can be a cautious entry point to ride the long-term drivers.
