National Stock Exchange Fifty (NIFTY)

by Sonam Singh 03-Mar-19

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NIFTY, derived from two words "National" and "Fifty", is the market index of well-established and financially strong 50 companies listed on 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 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 on March, 2017. It monitors the shares of 50 major companies of the country and gives the 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 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 involve 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:

a) 1995 is base year and base value is set at 1000.

b) Calculation is done taking into consideration 50 stocks that are actively traded on NSE which belongs to 24 sectors.


The Formula:

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)

Note - IWF is a unit of floating stock expressed in the terms of the number available for trading.


Eligibility Securities:

Nifty 100 indexes that are available for trading in NSE's Futures & Options are eligible for inclusion in Nifty 50.

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 fulfills the impact cost, float adjusted market capitalization for three month.

4) Trading Frequency - Company's trading frequency should be 100% in last 6 months.

List of NIFTY 50 Indexes - download here


Conclusion

The NIFTY 50 covers major sectors of the Indian Economy and offers investment managers exposure to the Indian market in one efficient manner.

Want to know more about NIFTY? - click here


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