What is NIFTY & How It is Calculated?
NIFTY, also known as the National Stock Exchange Fifty, is a widely followed benchmark index in the Indian equity markets. Introduced by the National Stock Exchange (NSE) in 1996, NIFTY 50 tracks the performance of the top 50 equity stocks listed on the NSE, selected based on their free-float market capitalisation and liquidity.
In this blog, we will talk about everything you need to know about NIFTY. So, let’s dive in to understand more about NIFTY, including when was NIFTY established, its meaning, benefits, factors, and more.
Top Companies Listed in NSE Nifty 50 Based on Market Cap
| Stock Name | Sub-Sector | Market Cap (in cr) | Close Price |
|---|---|---|---|
| Reliance Industries Ltd | Oil & Gas - Refining & Marketing | ₹20,02,982.99 | ₹2,863.2 |
| Tata Consultancy Services Ltd | IT Services & Consulting | ₹13,92,782.79 | ₹3,830.4 |
| HDFC Bank Ltd | Private Banks | ₹11,53,545.70 | ₹1,559.7 |
| Bharti Airtel Ltd | Telecom Services | ₹8,26,210.69 | ₹1,370.6 |
| ICICI Bank Ltd | Private Banks | ₹7,95,799.94 | ₹1,110.4 |
| State Bank of India | Public Banks | ₹7,39,493.34 | ₹816.95 |
| Infosys Ltd | IT Services & Consulting | ₹6,06,591.73 | ₹1,472.25 |
| Hindustan Unilever Ltd | FMCG - Household Products | ₹5,56,629.91 | ₹2,549.6 |
| ITC Ltd | FMCG - Tobacco | ₹5,44,583.55 | ₹435.4 |
| Larsen and Toubro Ltd | Construction & Engineering | ₹4,98,472.12 | ₹3,482.55 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data is from 7th June 2024. The above list of top stocks in NSE Nifty 50 is derived from Tickertape Stock Screener.
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Overview of the Best Companies Listed in NSE Nifty 50
Reliance Industries Ltd
Reliance Industries Limited (RIL) is an Indian multinational conglomerate headquartered in Mumbai. It was founded by Dhirubhai Ambani in 1958. It offers a diverse business portfolio that includes energy, petrochemicals, natural gas, retail, telecommunications, mass media and textiles. The company’s market capitalisation is Rs. 20,02,983 cr. and is 1.64x as volatile as Nifty. As of 7th June 2024, the stock price is Rs. 2,863.
Tata Consultancy Services Ltd
Tata Consultancy Services Ltd. (TCS) is a leading Indian multinational information technology (IT) services and consulting company. It is a subsidiary of the Tata Group and is headquartered in Mumbai, India. The company’s market capitalisation is Rs. 13,92,782 cr. and is being traded at Rs. 3,830.4 as of 7th June 2024.
HDFC Bank Ltd
HDFC Bank Limited offers a range of banking services covering commercial and investment banking on the wholesale side and transactional/branch banking on the retail side. The company is headquartered in Mumbai. The company’s market capitalisation is Rs. 11,53,545.70 cr. and is being traded at a price of Rs. 1,559.7 as of 7th June 2024.
Bharti Airtel Ltd
Bharti Airtel Limited, commonly known as Airtel, is an Indian multinational telecommunications services company based in New Delhi. It operates in 18 countries across South Asia and Africa, as well as the Channel Islands. As of 7th June 2024, the market capitalisation of the company is Rs. 8,26,210.69 cr. The stock price is Rs. 1,370.6.
State Bank of India
State Bank of India is a public sector bank providing a range of products and services to personal, commercial enterprises, large corporates, public bodies and institutional customers. The company is headquartered in Mumbai, Maharashtra. As of 7th June 2024, the market capitalisation of the company is Rs. 7,39,493.34 cr. The stock price is Rs. 816.95.
Infosys Ltd
Infosys Ltd is a global leader in consulting, technology, outsourcing, and next-generation services. The company is headquartered in Bangalore, India. As of 7th June 2024, the company’s market capitalisation is Rs. 6,06,591 cr. Furthermore, the stock price is Rs. 1,472.25.
Hindustan Unilever Ltd
Founded in 2017, Hindustan Unilever Limited is engaged in the fast-moving consumer goods business. The Company’s segments are Soaps and Detergents, Personal Products, Beverages, Packaged Foods, chemicals, water business and infant care products. The company has a market capitalisation of Rs. 5,56,629 cr. and is being traded at a stock price of Rs. 2,549.6 as of 7th June 2024.
ITC Ltd
ITC Ltd, formerly known as Indian Tobacco Company Limited was established in 1910. The company operates through four segments: FMCG, Hotels, Paperboards, Agri-Business, and Paper & Packaging. The company has a market capitalisation of Rs. 5,44,583 cr. The company is being traded at a stock price of Rs. 435.4.
Larsen and Toubro Ltd
Larsen & Toubro Limited (L&T) is an Indian multinational conglomerate with interests in industrial technology, heavy industry, engineering, construction, manufacturing, power, information technology, military and financial services. As of 7th June 2024, the market capitalisation of the fund is Rs. 4,98,472.12 cr. and the stock is being traded at Rs. 3,482.55.
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What is NIFTY?
NIFTY stands for National Stock Exchange Fifty introduced by NSE on 21st April 1996. NIFTY is a stock market index that represents the performance of the top 50 companies. It is based on their free-float market capitalisation.
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 capitalisation, 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 stock prices increase, the index rises, and conversely, it falls if prices decline.
Essentially, a stock market index reflects market changes, portraying the collective sentiment and price shifts. Investors and financial managers employ it to assess the portfolio base value of the National Stock Exchange Fifty and compare performance against benchmark equity indices.
How Does NIFTY Work?
After understanding the full form and meaning of NIFTY, it is crucial to understand how NIFTY works. It is calculated using the float-adjusted and market capitalisation-weighted method, considering only the shares available for trading in the market. The index value is updated every second during market hours and serves as a benchmark for various financial products, including index funds, ETFs, futures, and options contracts.
NIFTY undergoes periodic changes to reflect changing market conditions and composition, with reconstitution taking place every six months based on criteria set by the India Index Services and Products Limited (IISL).
Eligibility Criteria for Companies to Get Listed on NIFTY 50
The eligibility for the National Stock Exchange Fifty index is as follows:
- 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 capitalisation. Over six months, the impact cost should be less than or equal to 0.50%, while 90% of observations are made on a portfolio of Rs. 10 cr.
- The company’s trading frequency should be 100% over the last six months, and its free-floating average market capitalisation must be 1.5 times greater than the smallest constituent in the index.
- Companies with Differential Voting Rights (DVR) shares are also eligible.
Remember, the National Stock Exchange Fifty 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.
Types of NIFTY Indices
There are various types of nifty index and some of them are mentioned below:
- 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 capitalisation.
- NIFTY Next 50: It comprises the next 50 companies after the NIFTY 50 and is also based on free-float market capitalisation.
- NIFTY 500: It is a broad-based type 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 capitalisation.
- NIFTY Midcap 150: It represents the mid-sized companies listed on the NSE, based on free-float market capitalisation.
- NIFTY Smallcap 250: It comprises the small-sized companies listed on the NSE, based on free-float market capitalisation.
- 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 sector companies overlooking the mining and distribution functions related to metals found in India.
- NIFTY Auto: Nifty Auto is an index that showcases all the automotive, and automobile sector stocks along with ancillary manufacturers like vehicle components and tyres.
- NIFTY Realty: This index represents the real estate sector in India, including companies engaged in real estate development, construction, and property management
- NIFTY FMCG: This index tracks the performance of Fast Moving Consumer Goods (FMCG) companies in India.
- NIFTY Pharma: This index represents the pharmaceutical sector in India, including companies engaged in the development, manufacturing, and distribution of pharmaceutical products.
- NIFTY Energy: This index tracks the performance of energy companies in India, including those involved in the exploration, production, and distribution of energy resources.
Importance of NIFTY-For Investors
Here are a few key reasons why NIFTY is important:
Benchmarking Tool for Portfolio Performance
NIFTY is a benchmark share market index that represents the performance of the 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.
Tracking Market Trends and Sentiment
The NIFTY index 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.
Investment Decision-Making Based on NIFTY Performance
Many investors use the NIFTY as a tool for investment decision-making. By analysing 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.
Major Milestones of NIFTY
- 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, favourable 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.
- 2023: Nifty crossed 20,000 mark.
How is NIFTY Calculated?
NIFTY is calculated using a free-float market capitalisation-weighted methodology. This means that the weight of each stock in the index is determined by its free-float market capitalisation, which considers only the shares available for public trading and excludes shares held by promoters, government, employees, and other strategic partners.
The nifty calculation formula is listed below:
Index Value: Current Market Value / (Base Market Capital * 100)
Where:
- Current Market Value is the weighted aggregate market capitalisation of all 50 companies in the index.
- Base Market Capitalisation is the weighted aggregate market capitalisation of all 50 companies as on the base date.
Benefits of Investing in NIFTY
Investing in NIFTY has several benefits, including:
- Diversification: NIFTY consists of various indices based on market cap and sectors. thus presenting an opportunity for an investor to diversify their investment portfolio. This helps reduce the overall risk of the portfolio.
- 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 listed in the index.
Factors Affecting the NIFTY Index
Various factors affect the 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.
Differences Between NIFTY and Sensex
| Basis | NIFTY | Sensex |
|---|---|---|
| Full Form | National Stock Exchange Fifty | The sensitive index of the national stock exchange of India is popularly known as SENSEX India. |
| Methodology | Free-Float Market Capitaliszation Weighted Index | Market Capitalisation Weighted Index |
| Calculation | Uses free-float market capitalisation methodology | Uses full market capitalisation methodology |
| Base Year | 1995 | 1978 |
| Exchange | National Stock Exchange (NSE) | Bombay Stock Exchange (BSE) |
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 varies according to the brokerage platform. These platforms charges brokerage fees, taxes, mutual fund expenses, and other costs which can significantly impact your investment.
To Wrap It Up…
In conclusion, the NIFTY share index is an essential tool for investors looking to gain exposure to the Indian stock market. It comprises actively traded companies across various sectors and provides diversification, liquidity, and transparency. However, it is imperative to do your own research and/or consult a financial advisor before investing.
Frequently Asked Questions on NIFTY
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.
Introduced on 22nd April 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.
Bank NIFTY is a stock market index that represents the performance of the banking sector in India. It is a subset of the broader NIFTY index and comprises the most liquid and large-cap banking stocks listed on the National Stock Exchange (NSE).
You may access NIFTY from 9:15 am to 3:30 pm, Monday to Friday. Traders can buy and sell shares during this period without any restrictions.
Nifty 50 stock list includes the 50 leading companies traded on the NSE, chosen based on their free-float market capitalisation, liquidity, and sector representation.
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