Nifty 50: A Complete Overview for Aspiring Investors
- December 12, 2023
- 3379 Views
- by Arun Singh Tanwar
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If you have ever noticed your friends or family member (s) switching to an economic or business news channel, you must have seen terms like “NIFTY” floating around. Perhaps you wondered why stock market enthusiasts are so deeply engaged in the news of a rise or fall in NIFTY levels.
But here is the thing: most people have literally invested their money in this Indian stock index.
So, What is NIFTY? How is NIFTY calculated? What is NIFTY 50? This article answers all these questions. Hop on!
What is NIFTY?
Nifty, or Nifty 50, is the flagship market index of the National Stock Exchange (NSE), comprising the leading 50 companies listed on the bourse based on their market capitalizations. It stands for National Fifty, coined by the NSE on 21 April 1996.
Investors and traders use the Nifty 50 as a benchmark to monitor the performance of the overall Indian stock market. That is because the index houses some of the most prominent and highly liquid firms on the exchange.
Nifty includes stocks of companies spanned across 14 sectors, including healthcare, power, chemicals, and consumer durables.
How is NIFTY Calculated?
The float-adjusted and market capitalization method is used to calculate the Nifty index. The concept accounts for only the freely tradable shares of a company, excluding restricted stock. Market capitalization is then calculated based on this adjusted float.
This method offers a clearer picture of a company’s market value as it considers only shares available for public trading.
Now, the formula to arrive at the Nifty index value is,
[Market Capitalization = Share Price * Equity Capital]
[Free-float market capitalization = Share Price * Equity Capital * Investable Weight Factor (IWF)]
[Index Value = Current Market Value/(1000 * Base Market Capital)]
Where current market value: The weighted total market cap of all 50 companies
Base market capital: The weighted total market cap of all 50 companies in the base period.
Investable weight factor: Helps find the shares available for trading and does not include the shares bought by the government, employees, and promoters of the company.
For calculation, the base period is 3rd November 1996, the base value is 1000 points, and the base capital is ₹2.06 Tn.
Eligibility Criteria for NIFTY Index Listing
The following are the criteria for companies to be a part of the Nifty market index:
Domicile
The company under consideration must be registered in India and have its stocks listed on the NSE.
Listing History
The company must be listed on the Nifty exchange for at least six months. However, the period is reduced to one month for IPOs.
Market Cap
The company’s free-float market capitalization should be at least 1.5X that of the smallest constituent in the Nifty 50.
Liquidity
The company should have adequate liquidity and have traded its shares at least 90% of the trading sessions at a maximum average cost of 0.50% six months before the index review.
Trading Frequency
The company’s stocks must have a trading frequency of 100% six months before the index review. That means the stock has been traded in every trading session during that time frame.
Voting Rights
Companies offering stocks with differential voting rights (DVR) can also make it to the Nifty 50 index. That said, such stocks should have a DVR free float of at least a tenth of the company’s free-float market cap and 100% of the free-float market cap of the last security in the index.
Security Type
The company must have been included in the Nifty 100 index, and its stocks are available for trading in the NSE’s Futures & Options (F&O) category. As such, traders can buy and purchase nifty 50 futures contracts.
Top Companies Listed under NIFTY
| Company Name | Market Cap (in Cr.) |
| Reliance Industries Ltd. | ₹15,63,312 |
| Tata Consultancy Services Ltd. | ₹12,25,142 |
| HDFC Bank Ltd. | ₹11,27,568 |
| ICICI Bank Ltd. | ₹6,56,898 |
| Hindustan Unilever Ltd. | ₹5,82,123 |
| Infosys Ltd. | ₹5,70,742 |
| Bharti Airtel Ltd. | ₹5,45,258 |
| ITC Ltd. | ₹5,41,799 |
| State Bank of India | ₹5,16,512 |
| Bajaj Finance Ltd. | ₹4,47,407 |
Here is the list of the top ten companies listed under Nifty 50 based on market capitalization. (as of 10 November 2023)
Major Single-day Falls in Nifty History
Below are some of the most significant single-day falls in the history.
| Date | Fall | Primary Factor |
| 23 March 2020 | 1135.20 points (12.98%) | COVID-19 pandemic |
| 26 Feb 2021 | 568.20 points (3.76%) | Reduced global output |
| 14 Feb 2022 | 531.95 points (3.06%) | Rate Hike Statements by US Fed, Russia-Ukraine Tension, and ABG Shipyard Fraud Case |
| 21 January 2008 | 496.50 points (8.70%) | US Subprime Mortgage Crisis |
| 24 August 2015 | 490.95 points (5.92%) | Continuous Value Decline of the Shanghai Stock Exchange |
Major Single-day Gains in Nifty History
Below are some of the most significant single-day gains in history.
| Date | Gain | Primary Factor |
| 7 April 2020 | 708.40 points (8.76%) | Reducing COVID-19 Cases in Adversely Affected Regions |
| 20 September 2019 | 655.45 points (6.12%) | India’s Finance Minister (FM) Announced a Reduction in the Corporate Tax Rate for Domestic Firms and New Domestic Manufacturers |
| 18 May 2009 | 651.50 points (17.74%) | Positive Results of 2009 Indian General Elections |
| 1 Feb 2021 | 646.60 points (4.74%) | Union Budget Day by the Indian FM |
| 15 Feb 2022 | 509.65 points (3.03%) | Russian Troops Retreat from the Ukraine Border |
Closing the Book
The Nifty index stands as a barometer of the Indian stock market, reflecting the pulse of multiple sectors and offering traders/investors a comprehensive snapshot of market performance. It has become an indispensable platform that brings together the achievements of industry giants, showing how confident Nifty traders are and how well the Indian economy is doing.
As India’s financial fabric continues to evolve and grow, Nifty will guide investors through the ebbs and flows of the market.
Also Read: Index Funds
FAQs
What is Nifty 50, and what does it represent in the financial market?
Nifty 50 is India’s benchmark stock market index. It represents the performance of the 50 most liquid companies listed on the NSE. These companies span various sectors, providing a diversified snapshot of the Indian economy. Nifty 50 serves as a key indicator of market trends and is widely used by investors and analysts for benchmarking portfolio performance and understanding the overall health of the Indian financial market.
How is Nifty 50 different from the Sensex in India?
Nifty 50 comprises the top 50 companies listed on the National Stock Exchange (NSE). Sensex includes the top 30 companies listed on the Bombay Stock Exchange (BSE).
The base year for Nifty is 1995, and the base number is 1000. The base year for Sensex is 1978-79, and the base number is 100.
The Nifty 50 is a well-diversified market index with stocks from 14 sectors, including technology, financial services, energy, and consumer goods. The Sensex is a less diversified index than the Nifty 50, spanning 9 sectors, with a higher concentration of stocks from the banking industry.
The Nifty 50 is more popular with investors who invest in derivatives, such as Nifty futures and options, while the Sensex is more popular with investors who invest in stocks.
What are the components of the Nifty 50 index, and how are they selected?
The Nifty 50 market index constitutes 50 of the most liquid stocks on the NSE. These companies are included in the index based on their free-float market capitalization.
How is the Nifty 50 index calculated and maintained?
Investors and analysts alike can calculate Nifty 50 using the free-float market capitalization-weighted method. Simply put, each stock’s weight is determined by its market cap, which is calculated by multiplying the share price by the number of (free-float) shares available for trading.
What is the historical performance of Nifty 50, and how does it compare to other stock market indices?
Nifty 50 has performed historically well. The market index has exhibited a compound annual growth rate (CAGR) of 12% during 2013-2023. This is in line with other prominent stock market indices, like the S&P 500, which has grown around 10% on average over the same period.
Can individuals invest in Nifty 50 directly, and if so, how?
Individuals can invest in Nifty 50 directly by purchasing its constituent stocks, exchange-traded funds (ETF), index funds, or derivative contracts.
What role does Nifty 50 play in the Indian stock market and the broader economy?
Nifty 50 is a critical barometer in the Indian stock market, representing the performance of 50 major companies. It is a crucial benchmark for investors and analysts, reflecting market trends and guiding investment decisions. As an indicator of economic health, Nifty 50 influences investor sentiment and acts as a reference point for analyzing the overall stability and growth prospects of the broader Indian economy.
How often is the composition of Nifty 50 reviewed and updated?
The Nifty 50 composition is reviewed and updated twice every year. The cut-off date is January 31 and July 31 of each year. The Nifty Index Committee is responsible for reviewing the index constituents. When reviewing the Nifty 50 index constituents, the committee considers several factors, including market cap, investment risk, and derivatives trading activity.
What are the key sectors and industries represented within the Nifty 50 index?
The Nifty 50 index covers stocks from the following industries:
Information Technology (IT)
Financial Services
Fast Moving Consumer Goods (FMCG)
Oil, Gas & Consumable Fuels
Construction
Construction Materials
Automobile and Auto Components
Metals & Mining
Healthcare
Consumer Durables
Power
Telecommunication
Chemicals
Services
How can one use Nifty 50 as a benchmark for their investment portfolio?
Investors can use Nifty 50 as a benchmark for their portfolio by comparing its performance with their investments. If their portfolios consistently outperform Nifty 50, it suggests strong performance. Conversely, underperformance may indicate a need for portfolio adjustments. Regularly assessing deviations helps Nifty traders gauge relative strength. Mimicking the index’s sectoral allocation aids in diversification.
