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If you have ever followed up with news regarding the stock market, you will notice that market experts often discuss “NIFTY” and its movements throughout a trading session. Investment gurus often refer to the NIFTY 50 when predicting stock market movements, and the NIFTY 50 charts are almost always shown in newspapers and on television.
Understanding the concept and significance of NIFTY 50 is essential for traders and investors in the stock market. In this article, we will look into each of these questions today.
What is NIFTY 50?
The top 50 large-cap organisations in India that are leading in the industries make up the NIFTY 50 index. This means that a handful of India’s largest and most well-known companies are included in this index.
NIFTY 50 is a combination of the words “National Stock Exchange” and “Fifty” that the NSE (National Stock Exchange) came up with. The stocks in this index are representative of thirteen different Indian economic sectors, such as consumer products, financial services, IT, and metals, to name a few.
NIFTY is one of the two national indexes, the other being the Bombay Stock Exchange-produced SENSEX. The NIFTY 50 index tracks the movements and patterns of blue-chip companies or the largest and most liquid Indian stocks.
There is a good chance that the whole Indian economy might be forced to deal with the adverse effects of the index’s downtrend if the companies in the NIFTY 50 underperform.
How does NIFTY 50 work?
NIFTY 50’s value relies on the free-float market capitalisation of stocks.
Each company’s market capitalisation is divided by the base period’s market capitalisation to arrive at the NIFTY 50 index value.
The weighted market capitalisation of all 50 companies is determined by multiplying the market price of a share by the number of free-float shares. Free float shares are all shares that are in circulation and not owned by promoters, the government, trusts, etc.
The NIFTY 50’s base date is November 3, 1995, and it has a base market capitalisation of ₹2.06 trillion, along with an assigned base value of 1000.
As the value of the organisations that are included in the NIFTY index shifts, so does the index’s value. For this reason, the NIFTY increases when the majority of the companies in the index rise and vice versa.
One excellent method of determining the general trajectory of the Indian stock market is tracking the movement of the NIFTY index. For this reason, fund managers frequently use NIFTY as a performance benchmark for their funds.
How NIFTY 50 is calculated?
The NIFTY calculation formula is your answer to “how the NIFTY index is calculated,” which is as follows:
NIFTY Index value = current market cap / (base market capital x 1000)
The current market cap = the index’s weighted market cap as determined
Base market capital = Weighted market capitalisation of 50 companies during the base period.
1000 = the base date’s value of the NIFTY 50 index
The stock selection process in the NIFTY 50
- The stock must be listed on the NSE.
- A free-float market cap-based method (market value of a company’s shares x the number of shares that are readily accessible) is used to pick the top 50 large-cap businesses from the NSE universe.
- Stocks included in the NIFTY 50 index should be easy to trade.
- The index rebalances the stocks semi-annually, increasing the NIFTY 50’s exposure to rising industries and companies.
Top 10 stocks of the NIFTY 50 index
From industry giants to leading powerhouses, the NIFTY 50 index comprises some of the biggest names in the Indian economy. Here is a list of the top 10 NIFTY 50 stocks (as of December 2023) ranked by stock weightage and their respective sectors.
|Oil & Gas
|Larsen & Toubro Ltd
|Tata Consultancy Services
|Kotak Mahindra Bank
Since its launch in 1996, the NIFTY 50 has had many ups and downs due to the dynamics of the equities market. However, the NIFTY 50 has emerged as the most popular benchmark for exchange-traded instruments on the Indian equities market throughout the last 27 years.
Due to its immense popularity, most investors use it to monitor the Indian stock market’s performance and make informed investment choices, both in India and abroad.
The 13 sectors in NIFTY 50 are financial services, information technology, FMCG, oil and gas, automobiles, telecommunication, construction, healthcare, metals, power, chemicals, services, and media and entertainment.
The start date of NSE’s equity trading, November 3, 1995, was also the base date for NIFTY 50, which was launched on April 22, 1996. The NIFTY 50 index was initially calculated with a base value of 1000 and represented the weighted average of 50 Indian company stocks.
The major holders of NIFTY 50 are the companies that have the highest free-float market capitalisation and weightage in the index. Some of the top position holders are HDFC Bank, Reliance Industries, Infosys, and Tata Consultancy Services, to name a few.
A group of experts at NSE Indices Limited handles the NIFTY share index. NSE Indices uses a float-adjusted and market capitalisation-weighted method to compute the index value of NIFTY 50 daily.
The respective stock exchanges that own and manage Sensex and NIFTY are in charge of them. Sensex is the benchmark index of the Bombay Stock Exchange, while NIFTY 50 is the flagship index of the National Stock Exchange. The Securities and Exchange Board of India regulates both stock exchanges.