What is NIFTY 50?

NIFTY is a market index introduced by the National Stock Exchange. It is a blended word – National Stock Exchange and Fifty coined by NSE on 21st April 1996. 

Nifty is a stock market index in India that is introduced and managed by the National Stock Exchange (NSE). It is a benchmark index that tracks the performance of the top 50 blue-chip companies listed on the NSE across 12 different sectors of the Indian economy, providing investors with a comprehensive view of the Indian economy’s performance. These sectors include information technology, financial services, entertainment and media, consumer goods, metals, telecommunications, pharmaceuticals, cement and its products, automobiles, pesticides and fertilizers, energy, and other services. 

NIFTY is one of the two national indices, the other being SENSEX, a product of the Bombay Stock Exchange. It is owned by the India Index Services and Products (IISL), a fully-owned subsidiary of the National Stock Exchange Strategic Investment Corporation Limited.

NIFTY 50 follows the trends and patterns of blue-chip companies, i.e., the most liquid and largest Indian securities.

NIFTY contains a host of indices – NIFTY 50, NIFTY IT, NIFTY Bank, and NIFTY Next 50; and is a part of the Futures and Options (F&O) segment of NSE which deals in derivatives.

Eligibility Criteria for NIFTY Index Listing?

NIFTY is reconstituted every six months to keep up with the latest stocks and trends. During this time, it considers the 6-month performance of stocks and checks whether a company’s shares fulfill the eligibility criteria. NSE Indices Limites has a team of professionals managing the NIFTY index. This index Advisory Committee offers guidance and expertise on large-scale issues related to equity indices. Accordingly, the index managers will remove or include old or new stocks in the benchmark. Concerning new additions, companies are involved four weeks before the reconstitution. To be eligible for listing on NIFTY, the following criteria are necessary.

• The company must be registered with the National Stock Exchange (NSE) while being a domicile of the country.

• The company’s stocks should be highly liquid. The average of their impact cost measures this. Impact cost is the price of trading a single security about the index’s weight, as seen through the company’s market capitalization. For six months, the company’s impact cost should be less than or equal to 0.50% or lower, with 90% of the sightings and analyses made on a portfolio over ₹ ten crores.

• The trading frequency of the company should be 100% in the past six months.

• The company should have a free-floating average market capitalization. The market capitalization should be 1.5 times greater than the smallest company on the index.

• Any companies with DVR shares, that is, shares with ‘Differential Voting Rights,’ are also eligible to be a part of Nifty 50.

Apart from the 6-month reconstitution routine undertaken by Nifty, the index also goes through reconstitution when a company undergoes events like spin-offs, suspensions, compulsory delisting, or mergers and acquisitions. Additionally, Nifty also conducts a quarterly screening of each of its companies to track whether they adhere to the portfolio’s regulations for ETFs and Index Funds. SEBI, or the Securities and Exchange Board of India, keeps putting out new mandates that companies must adhere to, or else they may be delisted from indices like Nifty.

Top Companies Listed Under NIFTY

Here are the top 10 companies that made it to the Nifty 50 index as of February 2023:

How Nifty is Calculated?

A team of professionals at the NSE Indices Limited manages the NIFTY share index. It formed an Index Advisory Committee offering expertise and guidance on large-scale issues pertinent to equity indices.

NIFTY 50 indices are computed using a float-adjusted and market capitalization-weighted method. In this method, the index level demonstrates the aggregate market value of stocks present in the index in a specific base period. Such a base period for a NIFTY 50 index is 3rd November 1995, where the index’s base value is 1000, and its base capital stands at Rs. 2.06 Trillion.

The formula for calculating the price index is listed below –

Index value = Current MV or market value / (Base Market Capital * 1000)

The methodology involved in calculating indices also considers changes in corporate actions, which comprise rights issuance, stock splits, etc.

The NIFTY share market index is a benchmark standard against which all equity markets in India are measured. Therefore, NSE conducts regular index maintenance to ensure that it remains stable and persists as the benchmark in the Indian stock market context.

Different Types of NIFTY Indices: Sectorial Indices

In addition to the Nifty 50, the National Stock Exchange of India also calculates and publishes sectoral indices, representing the performance of specific sectors of the economy. These indices are calculated using the same methodology as the Nifty 50 but with a narrower focus on a particular sector. For example, the Nifty Bank index tracks the performance of the banking sector, while the Nifty IT index tracks the performance of the information technology sector.

• NIFTY BANK: Ascertains the benchmark that helps investors and market intermediaries review the capital market performance of the banks in India.

•  NIFTY AUTO: Consists of manufacturers of cars, motorcycles, heavy vehicles, tires, and auto ancillaries.

• NIFTY Financial Services 25/50: Individual stock’s weight should not be more than 25%. The average weight of all the stocks whose individual weight is 5% should not exceed 50%.

•  NIFTY FMCG: Goods that are non-durable, massively consumed, and available off the shelf.

• NIFTY IT: Companies should be engaged in IT infrastructure, IT education, software training, networking infrastructure, software development, hardware, IT support & maintenance.

• NIFTY MEDIA: It includes media, entertainment printing, and the publishing industry.

• NIFTY METAL: Includes metal as well as the mining sector.

• NIFTY PHARMA: Companies involved into manufacturing of pharmaceuticals.

• NIFTY PSU BANK: Banks that are traded (listed & traded and not listed but permitted to trade) at the NSE are eligible for inclusion in the index subject to fulfillment of selection criteria.

• NIFTY PVT BANK: This index tracks the performance of private sector banks in India. This includes banks like HDFC Bank, ICICI Bank, and Axis Bank, among others. Private sector banks have been growing rapidly in India in recent years, and this index provides investors with a way to track their performance.

• NIFTY REALTY: Primarily engaged into construction of residential as well as commercial properties.

• NIFTY OIL and GAS: All the companies involved in manufacturing and extracting oil, gas and petrol.

• NIFTY Consumer Durables: Manufacturers of home furnishings, consumer electronics, housewares and other such products.

How to invest in NIFTY?

You can invest in NIFTY in several ways:

• Mutual Funds: One of the most popular ways to invest in Nifty is through mutual funds. Many mutual fund companies offer index funds that invest in Nifty. You can invest these funds through lump-sum investments or systematic investment plans (SIPs).

• Index funds: Investing in index funds that track the Nifty is another option. Index funds are passive investments that aim to replicate the performance of a particular index.

• Futures and options: Investors can trade Nifty futures and options on the National Stock Exchange (NSE).

Benefits of Investing in NIFTY

Get ready to spice up your investment portfolio with Nifty 50 benefits:

• Diversification: NIFTY 50 comprises 50 large-cap stocks from different sectors of the Indian economy. Investing in NIFTY can provide diversification benefits and reduce the overall risk of an investment portfolio.

• Passive Investing: NIFTY 50 is a passive investment instrument that tracks the performance of the top 50 companies listed on the National Stock Exchange (NSE). This makes it an easy and convenient option for investors who prefer a hands-off investment approach.

• Liquidity: NIFTY 50 is highly liquid and can be bought or sold easily on the stock exchange. This makes it a preferred investment option for traders seeking short-term gains.

• Long-term Growth Potential: India is one of the fastest-growing economies in the world, and the country is expected to continue to grow in the coming years. By investing in NIFTY, investors can tap into the long-term growth potential of the Indian economy.

• Historical Performance: NIFTY 50 has delivered solid returns to investors. Over the long term, the index has outperformed many other asset classes, including gold and fixed deposits.

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