NIFTY is a combination of two words National and Fifty. Managed and calculated by India’s National Stock Exchange (NSE Indices Ltd.), Nifty is a market index and is considered an indicator of the performance of the overall market.
For Explanation in Hindi: निफ्टी (NIFTY) क्या है | Nifty Kya Hota Hai
Nifty was introduced by NSE on April 21, 1996.
Generally called ‘Nifty 50’, it comprises of 50 major companies across various sectors. NIFTY 50 is a float-adjusted market capitalization weighted index. It is also considered as a benchmark for index-based funds and derivatives. Nifty 50 stocks represent around 65% of the total free-float market capitalization present under NSE. (Free-float market capitalization of a company is market cap of the company derived after excluding government’s, promoters’ holdings, associate group cross-holdings etc.)
Constituent companies need to pass certain eligibility criteria to be part of Nifty 50 which is rebalanced every 6 months in March and in September.
NIFTY 50 Inclusion
Major eligibility criteria for inclusion of companies in Nifty 50 are:
- The company must be domiciled (situated permanently) in India and listed and traded at the NSE
- Companies which are part of Nifty 100 index and whose Futures and Options are being traded are eligible for inclusion in Nifty 50
- Stocks with Differential Voting Rights (DVR – Shares which have lesser voting rights but are given a dividend premium). A noteworthy point here is that upon the inclusion of DVRs in index, the index may have an increased number of securities. If DVR of an existing NIFTY 50 constituent is included in NIFTY 50, the NIFTY index will have 51 securities but continue to have 50 companies
- The stock should have Liquidity. It should have traded at an average impact cost of less than 0.50% during the 6 months. This ensures that there is no large difference between the buy and sell price of a stock at any given point
- Average free-float market capitalization of the company should be at least 1.5 times the average free-float market capitalization of the smallest constituent in the index
- Companies which launch their IPO are eligible for inclusion in Nifty 50 if they satisfy the above criteria for a three-month period instead of a six-month period
NIFTY 50 Calculation
NIFTY 50 = (Total Free-Float Market Capitalization of 50 Companies / Base Market Capitalization as on November 3, 1995) x (Base Index Value)
where,
Free-float market capitalization of a company = (Total no. of shares of the company readily available for trading in the market (excluding Government’s, Cross-holdings, Promoters’ holdings, etc.)) x (Current stock price of the company)
Base Market Capitalization = Market capitalization of companies under consideration as on the base period November 3, 1995. Base Market Capitalization has been set to Rs. 2.06 trillion.
Base Index Value = 1000 (Fixed. As decided by the Index Committee to indicate index value as on base date 3 Nov. 1995)
Example:
Consider there are 50 Companies in the Index named as Company 1, Company 2, Company 3….. till Company 50 with the following details:
Here, the total free-float capitalization of 50 companies comes out to be 23.22 Trillion.
So as per formula, NIFTY = (23.22 Trillion/2.06 Trillion) x 1000 = 11,271.84
Note: These details are considered for calculation purposes only. Actual numbers vary. Additional calculations, adjustments are done to consider mergers, dividends, etc. while deriving actual NIFTY.
NIFTY 50 Constituents
Current 50 constituent companies of Nifty 50 (as on 01st October 2020) are:
Adani Ports and Special Economic Zone Ltd., Asian Paints Ltd., Axis Bank Ltd., Bajaj Auto Ltd., Bajaj Finance Ltd., Bajaj Finserv Ltd., Bharat Petroleum Corporation Ltd., Bharti Airtel Ltd., Britannia Industries Ltd., Cipla Ltd., Coal India Ltd., Divi’s Laboratories Ltd., Dr. Reddy’s Laboratories Ltd., Eicher Motors Ltd., GAIL (India) Ltd., Grasim Industries Ltd., HCL Technologies Ltd., HDFC Bank Ltd., HDFC Life Insurance Company Ltd., Hero MotoCorp Ltd., Hindalco Industries Ltd., Hindustan Unilever Ltd., Housing Development Finance Corporation Ltd., ICICI Bank Ltd., ITC Ltd., Indian Oil Corporation Ltd., IndusInd Bank Ltd., Infosys Ltd., JSW Steel Ltd., Kotak Mahindra Bank Ltd., Larsen & Toubro Ltd., Mahindra & Mahindra Ltd., Maruti Suzuki India Ltd., NTPC Ltd., Nestle India Ltd., Oil & Natural Gas Corporation Ltd., Power Grid Corporation of India Ltd., Reliance Industries Ltd., SBI Life Insurance Company Ltd., Shree Cement Ltd., State Bank of India, Sun Pharmaceutical Industries Ltd., Tata Consultancy Services Ltd., Tata Motors Ltd., Tata Steel Ltd., Tech Mahindra Ltd., Titan Company Ltd., UPL Ltd., UltraTech Cement Ltd., Wipro Ltd.
NIFTY 50 Levels over the years
