March 30, 2022 05:50 PM
Nifty 50 Index Overview:
Nifty 50 is a collection of top performing 50 equity stocks that are actively trading in the index.
Nifty is a popular stock index. The National Stock Exchange of India introduced it. This index was founded in 1992 and started trading in 1994. It is owned and managed by India Index Service & Products Limited (IISL). IISL is an Indian specialized company which focuses on an index as its focus product.
The NIFTY 50 is a diversified 50 stock index accounting for 13 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.
Nifty 50 is owned and managed by NSE Indices Limited (formerly known as India Index Services & Products Limited) (NSE Indices). NSE Indices is India’s specialised company focused upon the index as a core product.
The NIFTY 50 Index represents about 66.8% of the free float market capitalization of the stocks listed on NSE as on March 29, 2019.
The total traded value of NIFTY 50 index constituents for the last six months ending March 2019 is approximately 53.4% of the traded value of all stocks on the NSE.
Impact cost of the NIFTY 50 for a portfolio size of Rs.50 lakhs is 0.02% for the month March 2019..
NIFTY 50 is ideal for derivatives trading.
Nifty 50 covers the following sectors of the Indian economy.
It follows the patterns and trends of blue-chip companies. These are the largest companies with high liquidity in India. Nifty also contains several sub-indices based on separate asset classes, sectors, or segments. They are Nifty 50, NIFTY IT, NIFTY Next 50, NIFTY Bank, NIFTY Small Cap, and many more. Also, Nifty has 1600 companies listed in it.
NIFTY 50 is a benchmark index by NSE. It is one of the two national indices and a broad-based index of the National Stock Exchange NSE. Also, NSE is a leading stock exchange in India. It is the largest trading platform in India. Another national index is Sensex which is a product of the Bombay Stock Exchange BSE.
|COMPANY||INDUSTRY||MARKET PRICE||NO OF SHARES|
|Sun Pharmaceutical Industries||PHARMA||922.00||2,399.3|
|TATA CONSUMER||FOOD BEVERAGES||750.00||921.6|
|OIL & GAS||119.70||9,414.2|
Companies are in Nifty:
For the latest stock performance, the Nifty index reconstitution happens every six months. It checks the 6-month performance of the stocks. It also checks if the companies fulfill the eligibility criteria. Following these criteria, it eliminates or adds stocks in the stock list, respectively. In case of any elimination or addition, the respective company is given a notice four weeks prior to reconstitution.
The NSE indices have an excellent team of professionals that manage the Nifty index. It is an advisory committee that offers guidance and expertise on issues that relate to equity indices.
The following is the eligibility criteria for companies for Nifty Index listing –
The company must be registered with the National Stock Exchange. It must be an Indian company.
The company’s stock must be highly liquid. The liquidity is measurable by the average impact cost. Impact cost is the trading price of single security in relation to the index’s weight to the company’s market capitalization. For six months, the company’s impact cost should be less than or equal to 0.50%. Otherwise, it should be lower with 90% of the observations made on a portfolio of Rs.10 crores.
For the last six months, the company’s trading frequency should be 100%
The company should have a free-floating average market capitalization. This should be 1.5 times greater than the smallest company on the index.
Shares of the companies that have DVR or Differential Voting Rights can also be eligible for the Nifty 50 Index.
Apart from the periodical routine, the index also goes through a reconstitution when the company undergoes certain events—for instance, company events like spin-offs, mergers or acquisitions, suspensions or compulsory delisting. Additionally, Nifty conducts quarterly screening of the companies to keep track of whether they are adhering to regulations.
The companies must also adhere to specific mandates given by the Securities and Exchange Board of India (SEBI). Otherwise, the companies may be delisted from the indices.
NIFTY 50 Calculation:
Nifty 50 indices calculation uses the float-adjusted and market capitalization method. Here, the level index demonstrates the aggregate market value of the stocks present in it for a specific duration.
This particular base duration for the Nifty index is 3rd November 1995. The base value of stocks is 1000, and the base capital is Rs.2.06 trillion
The formula for calculating the index value is as follows –
Market capitalization = Price * Equity Capital
Free Float Market Capitalization = Price * Equity Capital * Investable Weight Factor
Index value = Current market value / (1000 * Base market capital)
Investable Weight Factor (IWF) is a factor to determine the number of shares available for trading. The index calculation is on a real-time basis as the value of stock also changes daily.
The formula calculates not only the value but also the changes in the corporate procedures. For instance, changes in corporate can be stock splits, rights issues, and many more.
Nifty share market is a benchmark for measurement against all equity shares markets in India. It regularly conducts index maintenance checks. Therefore, this ensures that it is stable and working effectively. This can persist as a benchmark index of the Indian stock market.
Different between Nifty and Sensex:
Nifty and Sensex both are Indian stock market indices which depict the strength of the securities markets. Despite their similarity to the broad-based index, there is a difference between Sensex and Nifty.
The NIFTY 50 derivation is from the word National Fifty. It is also known as S&P CNX Nifty
Sensex derivation is from the phrase Sensitive Index. It is also known as the S&P BSE Index.
Date of Commencement:
NSE Nifty incorporation year is 1992. However, it commencement of its operations was in November 1994.
BSE Sensex incorporation year is 1986.
Index and Services and Products Limited (IISL), an NSE India subsidiary owns and operates Nifty.
The Bombay Stock Exchange (BSE) owns Sensex. BSE is also the largest trading platform in India.
Nifty is based on NSE. Its corporate office location is Exchange Plaza, Bandra Kurla Complex, Mumbai
Sensex is based on BSE. The corporate office location is at Dalal Street, Mumbai.
Nifty’s base period is 3rd November 1992
Sensex base period is 1978-1979
The nifty base value is 1000
Sensex base value is 100
Nifty base capital is Rs.2.06 trillion
Sensex does not have a base capital
Number of Constituents:
Nifty comprises the top 50 stocks traded on NSE
Sensex comprises the top 30 stocks traded on BSE.
Number of Sectors:
Nifty is a broad market index which covers companies across 24 sectors
Sensex covers companies across 13 sectors.
Nifty 50 Listed Companies:
Nifty has 1600 companies listed
Sensex has 5000 companies listed.
As such, there is no significant difference between Sensex and Nifty. They both target the large cap stocks. Nifty is broader than Sensex as it has more number of large cap stocks listed.
Also, Nifty has a more diversified portfolio in comparison to Sensex. One can even notice more trading happening on the NSE India platform.
Benefits of investing in the Nifty 50 Index:
There are different ways of investing in Nifty 50. A few of them are index funds, Nifty futures and options, and ETFs. One cannot directly invest in the index; instead, they have to buy all the 50 shares in the same proportion or invest in index funds and ETFs. Following are the benefits of investing in Nifty based index funds and ETFs:
Good returns in the long run: Nifty 50 was launched in 1996 with a base value of 1000. It reached the 15000 mark in 2021. Hence investing in index-based funds will provide good returns in the long run.
No bias by the fund manager: The index fund’s portfolio depends on the index directly, and the fund manager doesn’t have control over it. Hence it is free from fund manager bias.
Lower expense ratio: Index funds have a lower expense ratio when compared to other types of mutual funds. Since they are passive funds, the fund manager’s role is minimal, and hence the fund management fees are also low.
Market returns: The index funds offer market returns as they are a replica of the index. Their performance is directly dependent on the movement of the index. Hence it is easier to track investments.
Major Milestones of NIFTY:
Following are the major milestones of Nifty 50
1993: NSE was recognized as a stock exchange.
1996: The Nifty 50 index was launched with a base value of 1000. It is the flagship index of NSE.
2000: Nifty touched 1800 due to IT-boom.
2006: A service sector boom led to Nifty reaching 3000.
2007: Nifty 50 grew to 5000
2014: After NDA has formed government at the center, the nifty has touched 7,000.
2017: Strong FII participation led to an increase in Nifty to 9,000.
2017: GST rollout, good monsoon, and strong corporate earnings increased Nifty to 10,000.
2018: Nifty touched the 11,000 mark due to a fall in crude oil prices and a positive update from the World Bank on the Indian economy.
2021: Nifty touched the 15,000 mark due to COVID 19 vaccine rollout.