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What’s NIFTY: Meaning, Performance & Example

What’s NIFTY: Meaning, Performance & Example
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It’s a place where stock investing becomes more than just buying and selling. The National Stock Exchange Fifty which is the NIFTY full form or NIFTY 50 is a group of the top-performing companies in stock market in India. With its popularity and widespread usage, understanding NIFTY is key to unlocking a world of investment opportunities. 

This comprehensive guide will take you through everything you need to know about NIFTY. So, let’s dive in by taking a look at the NIFTY definition and the NIFTY meaning in stock market in India.

What is NIFTY in Share Market?

NIFTY stands for National Stock Exchange Fifty. NIFTY full form and meaning is a stock market index that represents the performance of the top 50 companies. These companies are listed on the National Stock Exchange (NSE) of India, a recognized stock exchange in India. It stands for National Stock Exchange Fifty and is known as the NIFTY 50. Whenever the price of these 50 stocks fluctuates, NIFTY moves accordingly. 

The index is a benchmark for portfolio performance and to track the overall health of the share markets in India. Before understanding what is NIFTY Index, let us learn what an Index is, in the first place.

What is an Index?

A stock index serves as a dynamic gauge of stock market fluctuations, measuring price movements and overall market performance. To construct an index, stocks with similar traits are grouped, based on industry type, total market capitalization, or company size.

The index value is calculated using the collective values of the grouped stocks. Any alteration in the underlying stock values directly impacts the index value. If most stock prices increase, the index rises, and conversely, it falls if prices decline.

Essentially, a stock market index meaning reflects market changes, portraying the collective sentiment and price shifts. Investors and financial managers employ it to assess portfolio base value of the National Stock Exchange Fifty and compare performance against benchmark equity indices.

How is NIFTY Index Calculated?

The index is calculated based on the free float market capitalization of the 50 constituent stocks India. These Indian stocks are weighted based on their market capitalization.

The value of the National Stock Exchange Fifty is calculated using a base year and a base value. These values are adjusted for stock splits, bonus issuances, and other corporate actions. It is calculated on a real-time basis and is disseminated every second during Indian markets and their hours.

Moreover, the methodology used for calculating the National Stock Exchange Fifty is reviewed and updated periodically. This is done to ensure that it accurately represents the market conditions and reflects the changes in the economy and the corporate sector.

Note: If you want to know more about how to calculate NIFTY, this blog is just for you!

Types of NIFTY Indices

There are various types of indices in NIFTY Some of the types of stock market indixes in NIFTY are:

  • NIFTY 50: It is the flagship India index of the National Stock Exchange (NSE). It represents the top 50 companies listed on the exchange, based on free-float market capitalization.
  • NIFTY Next 50: It comprises the next 50 companies after the NIFTY 50 and is also based on free-float market capitalization.
  • NIFTY 500: It is a broad-based types of the National Stock Exchange Fifty index that covers the top 500 companies listed on the NSE. It represents about 95% of the total market capitalization.
  • NIFTY Midcap 150: It represents the mid-sized companies listed on the NSE, based on free-float market capitalization.
  • NIFTY Smallcap 250: It comprises the small-sized companies listed on the NSE, based on free-float market capitalization.
  • NIFTY Bank: It represents the banking sector in India and comprises the top banking companies listed on the NSE. It is also known as Finnifty
  • NIFTY IT: It represents the Information Technology sector in India and comprises the top IT companies listed on the NSE.
  • NIFTY Metal: Nifty Metal consists of metal sectors companies overlooking the mining and distribution functions related to metals found in India.
  • NIFTY Auto: Nifty Auto is an index which showcases all the automotive, automobile sector stocks along with ancillary manufacturers like vehicle components and tyres.

Top Companies Listed on NIFTY 

Here is the list of the top 10 companies that are listed on NIFTY:

Top NIFTY 50 Stocks List Market Cap (in Cr)
Reliance Industries Ltd. ₹16,37,340
HDFC Bank Ltd₹9,45,359
ICICI Bank Ltd₹6,44,546
Infosys Ltd₹5,24,969
Housing Development Finance Corporation ₹5,11,428
Tata Consultancy Services Ltd₹11,63,541
ITC Ltd. ₹5,30,862
Larsen & Turbo Ltd₹3,31,173
Kotak Mahindra Bank Ltd₹3,84,113
Axis Bank Ltd₹2,64,645

Eligibility Criteria for Companies to Get Listed on NIFTY

The eligibility for the National Stock Exchange Fifty index is as follows. To be included in the Nifty 50 Index, a company must be registered with the National Stock Exchange and be of Indian origin. The stock’s liquidity is crucial, determined by the impact cost, measuring the trading price relative to the index’s weight on the company’s market capitalization. Over six months, the impact cost should be ≤ 0.50%, with 90% of observations on a Rs.10 crore portfolio.

The company’s trading frequency should be 100% over the last six months, and its free-floating average market capitalization must be 1.5 times greater than the smallest Indian market index company. Companies with Differential Voting Rights (DVR) shares are also eligible.

The National Stock Exchange Fifty consists of and undergoes reconstitution during significant events like spin-offs, mergers, acquisitions, suspensions, or compulsory delisting. Quarterly screenings ensure adherence to regulations. Compliance with Securities and Exchange Board of India (SEBI) mandates is imperative, as non-compliance may lead to delisting from the market indexes.

Importance of NIFTY for Investors

NIFTY is an important tool for investors due to its significance as a benchmark for the stock market in India. Here are a few key reasons why NIFTY is important:

1. Benchmarking tool for portfolio performance

NIFTY is a benchmark share market index that represents the performance of the top 50 companies listed on the National Stock Exchange of India. Investors can use it as a benchmarking tool to evaluate their portfolio’s performance against the overall market.

2. Tracking market trends and sentiment

The NIFTY index consists of and also provides a way for investors to track the overall market trends and sentiment, including the performance of various sectors and industries. This information can be valuable for making informed investment decisions.

3. Investment decision-making based on NIFTY performance

Many investors use the NIFTY as a tool for investment decision-making. By analyzing NIFTY’s performance, investors can get an idea of the overall market direction and make decisions accordingly. This can include selecting specific stocks or sectors to invest in or even making broader decisions like adjusting the overall asset allocation of their portfolio.

Benefits of Investing in NIFTY 

Investing in NIFTY has several benefits, including:

  • Diversification: NIFTY consists of 50 large-cap companies from different sectors, offering investors the advantage of diversification. This helps reduce the overall risk of the portfolio.
  • Low cost: Investing in NIFTY is relatively inexpensive compared to buying individual stocks. This is because NIFTY index funds have low management fees and transaction costs.
  • Liquidity: NIFTY is highly liquid, meaning investors can easily buy or sell shares without impacting the price of the index.
  • Transparency: NIFTY is a transparent and well-regulated index, providing investors with complete information about the companies included in the index and their weights.
  • Performance: NIFTY has historically delivered strong returns over the long term. Consequently, making it an attractive investment option for investors looking to achieve their financial goals.
  • Low cost: Investing in NIFTY is relatively inexpensive in comparison to buying individual stocks. This is because NIFTY index funds have low management fees and transaction costs.
  • Liquidity: National Stock Exchange Fifty is highly liquid. This means investors can easily buy or sell shares without impacting the price of the index.
  • Transparency: National Stock Exchange Fifty is a transparent and well-regulated index. Furthermore, it provides investors with complete information about the companies included in the index and their weights.
  • Performance: The index has historically delivered strong returns over the long term, making it an attractive investment option for investors looking to achieve their financial goals.

How to Invest in the NIFTY Index?

Investing in the National Stock Exchange Fifty can be done through Index Mutual Funds or Exchange Traded Funds (ETFs). These funds track National Stock Exchange Fifty or Sensex returns by investing in a diverse range of stocks. Unlike Mutual Funds, ETF prices are actively updated throughout the day, similar to stocks, allowing live buying and selling. In contrast, Mutual Fund prices are updated once daily, permitting transactions based on the End of the Day Price. Additionally, trading Nifty through Futures and Options provides alternative investment avenues.

Invest via smallcase to Earn Index-Beating Returns

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Over the last few years, smallcases have been providing superior returns compared to traditional benchmarks like  NIFTY types of stock market indices. For example, some popular smallcases such as “ESG Leaders” and “Dividend Aristocrats” have outperformed the NIFTY 50 by a significant margin since their inception.

In fact, the average annualized returns of their various portfolios have consistently beaten the NIFTY 50 index in the last five years.

Therefore, by investing in smallcases, you can take advantage of the superior returns generated by the expertise and knowledge of professional fund managers, while also enjoying the transparency, low fees, and flexibility of direct stock investments. So, what are you waiting for? Download the smallcase app today and gear up your investment journey. 

Factors to Consider While Investing in NIFTY

Some of the factors that you should consider while investing in National Stock Exchange Fifty are as follows: 

  • Fundamentals of the company: This refers to the financial and non-financial aspects of the company. Such as, its revenue, profit margins, debt-to-equity ratio, management quality, industry position, etc.
  • Valuation: The price of a company’s stock should be reasonable compared to its earnings and growth potential. Investors should assess whether the stock is overvalued or undervalued.
  • Market Trends: The stock market is influenced by various macroeconomic factors, such as interest rates, inflation, geopolitical events, etc. These factors can impact the performance of NIFTY 50 stocks.
  • Investment Horizon: The investment horizon refers to the length of time an investor plans to hold onto a particular stock. It is important to align one’s investment horizon with their investment goals and risk appetite.
  • Cost: The cost of investing in National Stock Exchange Fifty should be reasonable and affordable. Investors should compare brokerage fees, mutual fund expenses, and other costs before making an investment.

Factors Affecting the NIFTY Index

Various factors affect National Stock Exchange Fifty fluctuations, with global recessions and rising inflation being noteworthy contributors. Global economic downturns can notably influence the Nifty Index. Furthermore, increased inflation adversely affects the National Stock Exchange Fifty by raising borrowing costs for companies, hindering their expansion plans. Additionally, higher inflation reduces discretionary spending, shrinking the consumer base for companies’ offerings and consequently impacting the Nifty’s overall performance.

NIFTY Milestones Worth Noting

  • 1993: NSE gains stock exchange recognition in the base year of NIFTY. 
  • 1996: Launch of Nifty 50 index with a base value of 1000, becoming NSE’s flagship index.
  • 2000: National Stock Exchange Fifty peaks at 1800 during the IT boom.
  • 2006: National Stock Exchange Fifty soars to 3000 fueled by a service sector boom.
  • 2007: National Stock Exchange Fifty achieves the 5000 milestone.
  • 2014: National Stock Exchange Fifty hits 7,000 following the formation of NDA government.
  • 2017: Strong FII participation propels National Stock Exchange Fifty to 9,000.
  • 2017: National Stock Exchange Fifty reaches 10,000 with the GST rollout, favorable monsoon, and robust corporate earnings.
  • 2018: National Stock Exchange Fifty touches 11,000 due to a drop in crude oil prices and a positive World Bank update on the Indian economy.
  • 2021: Nifty attains the 15,000 mark with the rollout of COVID-19 vaccines.

Differences between NIFTY and Sensex 

BasisNIFTY Sensex
Full Form National Stock Exchange Fifty The sensitive index of national stock exchange of India is popularly known as SENSEX India.
Number of Companies 5030 
Methodology Free Float Market Capitalization Weighted IndexMarket Capitalization Weighted Index
Calculation Uses free-float market capitalization methodologyUses full market capitalization methodology
Base Year19951978
Exchange National Stock Exchange (NSE)Bombay Stock Exchange (BSE)
PerformanceConsidered a benchmark for the performance of large-cap companies in IndiaConsidered a benchmark for the overall performance of the Indian stock market

To Wrap It Up…

​​In conclusion, the NIFTY index is used in and is an essential tool for investors looking to gain exposure to the Indian stock market. It comprises 50 of the largest and most actively traded companies across various sectors and provides diversification, low cost, liquidity, transparency, and excellent performance. 

Moreover, investing in smallcases is a great way to participate in the growth potential of the stock market. By investing in smallcases, you can gain the benefits of diversification, professional management, and low fees. 

Additionally, with a long-term investment horizon, you can take advantage of the compounding effect and potentially build significant wealth over time. So, start investing in smallcases today and take a step towards achieving your long-term financial goals!

FAQs

1. How many companies are there in the NIFTY Index and what is the NIFTY 50 meaning?

NIFTY monitors the NSE’s top 50 stocks, chosen for their size and liquidity from a pool of over 1,600 listed stocks. The base year of NIFTY is 1996 and NIFTY stands for National Stock Exchange Fifty.

2. Nifty started in which year?

Introduced on April 22, 1996, being the National Stock Exchange Fifty base year, the Nifty 50 index is a key component of Nifty’s diverse range of stock indices.

3. Who manages the NIFTY Index?

The Nifty 50, NSE’s flagship index, is overseen by NSE Indices Ltd, a subsidiary of the National Stock Exchange (NSE). It is a prominent player globally, securing the second position in trade volume from January to December 2018.

4. What is Bank NIFTY?

Bank Nifty, an index on the National Stock Exchange, comprises the top 12 most liquid stocks in the banking sector. Serving as a benchmark, it reflects the capital market performance of the Indian banking sector.

5. When can I access NIFTY?

You may access Nifty from 9:15 am to 3:30 pm, Monday through Friday.

6. What is NIFTY 50?

What is meant by NIFTY 50 is a key index in the Indian stock market, reflects the average performance of the 50 largest companies listed on the National Stock Exchange. The NIFTY full form in share market is National Stock Exchange Fifty.

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