What is the full form of NIFTY?
The full form of NIFTY is National Stock Exchange Fifty.
It is derived from two words "National" and "Fifty", which is the market index of well-established and financially strong 50 companies listed on the National Stock Exchange of India (NSE).
NIFTY is India's most tracked and dominant stock index.
This most actively traded contract is also known as Nifty 50. It is owned and managed by India index services and Products Ltd (IISL), which is a wholly-owned subsidiary of the NSE.
The Nifty index represents about 62.9% of the free-float market capitalization of the stocks listed on NSE as of March 2017. It monitors the shares of 50 major companies in the country and gives information about their performance.
The NIFTY index goes up when prices of stock of top 50 companies on NSE go up and it goes down when the latter goes down.
How Nifty is calculated?
Well, Nifty is calculated through the free-float market capitalization-weighted method. It follows a mathematical formula to know market capitalization.
It involves the total market capitalization of the companies weighted by its effect on the index, so the larger stocks would make more of a difference to the index as compared to a smaller market cap company.
Points to remember while calculating Nifty
- 1995 is the base year and the base value is set at 1000
- The calculation is done taking into consideration 50 stocks that are actively traded on NSE which belongs to 24 sectors
- Market Capitalization = Share outstanding * Market Price per Share
- Free Float Market Capitalization = Share outstanding * Price * IWF (Investible Weight Factor)
- Index Value = Current Market Value / (Base Market Capital * Base Index Value)
IWF is a unit of floating stock expressed in the terms of the number available for trading.
Nifty 100 indexes that are available for trading in NSE's Futures & Options are eligible for inclusion in Nifty 50.
The selection of index set is based on the following criteria:
1 Liquidity - For inclusion in the index, the security should have traded at an average impact cost of 0.50 % or less during the last six months for 90% of the observations for the portfolio of Rs 10 crores.
2 Float-Adjusted Market Capitalization - Company must provide the average free-float market capitalization is at least 1.5 times the average free-float market capitalization to be eligible for index inclusion.
3 Listing History - A company is eligible for inclusion if it fulfils the impact cost, float-adjusted market capitalization for three months.
4 Trading Frequency - Company's trading frequency should be 100% in the last 6 months.
List of NIFTY 50 Indexes - download here
The NIFTY 50 covers major sectors of the Indian Economy and offers investment managers exposure to the Indian market in one efficient manner.
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