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Last updated on August 11th, 2024 at 10:31 pm
What is Nifty 50 ?
The NIFTY 50 is a major stock market index in India, provides investors and fund managers with a snapshot of the Indian market’s overall performance and serves as a critical tool for investment strategies, representing the performance of 50 of the largest and most well known companies listed on the National Stock Exchange (NSE).
Other than Nifty 50 , India also has SENSEX which represents Indian Stock Market Index comprises of 30 well-established and financially rich companies from various industrial sectors.
Learn More about Stocks: What are stocks ? Benefits, Dilution and more 2024 Edition
Here’s a breakdown of Nifty 50 in simplest form :
- It is a benchmark index that shows the average performance of the top 50 companies in India.
- This index is managed by NSE Indices. ( a subsidiary of the NSE Strategic Investment Corporation Limited )
The NIFTY 50 was launched on April 22, 1996.
It is the largest single financial product in India including exchange-traded funds and futures and options.
It is recognised globally with endorsements from surveys by WFE, IOM, and FIA.
The NIFTY 50 covers 13 different sectors of the Indian economy providing a broad view of the market.
As of March 2024, the sector distribution is:
- Financial Services (including Banking): 33.53%
- Information Technology: 13.04%
- Oil and Gas: 12.87%
- Consumer Goods: 8.15%
- Automotive: 7.57%
Between 2008 and 2012, the market share of the NIFTY 50 on NSE fell from 65% to 29%.
The decline was due to the emergence of other sector-specific indices like NIFTY Bank, NIFTY IT, NIFTY Pharma, and NIFTY Next 50.
Until 2013, NSE Indices had a co-branding agreement with Standard & Poor’s for equity indices.
How NIFTY 50 is Calculated ?
The NIFTY 50 index is calculated using the free float market capitalisation method.
Here’s a step-by-step explanation of the calculation process:
The market capitalisation calculated using the shares available for trading in the market, excluding shares held by promoters, government, trusts, etc.
The base period for NIFTY 50 is November 3, 1995 with a base value of 1000 and a base market capital of Rs. 2.06 trillion.
Calculation Steps
Determine Current Market Cap:
- Calculate the free float market cap for each of the 50 companies in the NIFTY 50.
- Free Float Market Cap = Free Float Shares × Market Price of the Share.
- Sum the free float market caps of all 50 companies to get the current market cap.
Apply the Base Period Values:
- Use the base market capital of Rs. 2.06 trillion from the base period.
- The base value of the index is 1000.
Calculate the Index Value:
Index value = ( current market cap / Base market capital ) X 1000
For example , let us consider the current market cap of all 50 companies in the NIFTY 50 is Rs. 10 trillion.
So index value = ( 10 trillion / 2.06 trillion ) x 1000 = 4854.37
Therefore , the NIFTY 50 index value would be 4854.37.
Some basic traits a company must show to be part of the NIFTY 50
For a stock to be included in the NIFTY 50 index, it must meet several criteria.
- The company must be registered in India and its shares must be listed on the National Stock Exchange (NSE).
- The stock should have been traded on at least 90% of the trading days in the six months prior to the index review
- The stock should have a low impact cost.
- The stock should rank among the top 800 companies listed on the NSE based on the average daily market capitalisation for the six months prior to the index review.
- The stock must have a high trading frequency.
- Companies with Differential Voting Rights (DVR) can also be included.
These criteria ensure that only the most significant, liquid, and frequently traded stocks are part of the NIFTY 50 index.
Top 10 Companies Listed Under NIFTY
- Adani Enterprises Ltd
- Adani Ports
- Divis Laboratories Ltd
- Apollo Hospitals
- Tech Mahindra Ltd
- Wipro Ltd
- Tata Consultancy Services
- HCL Technologies
- Infosys Ltd
- HDFC Life Insurance
