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What is NIFTY 50- How it is Calculated & How to Invest in It

NIFTY 50 helps in benchmarking fund portfolios, launching of index funds, ETFs and other structured products. India Index Services & Products Ltd. (IISL) unser NSE group company provides indices and index related services for the exchange. Nifty indices comprise broad market indices, sectoral indices, thematic indices, strategy indices, fixed income and hybrid indices. The equity capital is then multiplied by the share price to calculate free-float market capitalisation.

What parameters can affect the performance of an index?

Index is also referred to as an indicator which serves as a benchmark to analyze the performance of a portfolio’s returns. For those of you looking to invest with a long-term perspective in mind and lower risk involved, investing in NIFTY via index mutual funds or an ETF is the best option for you. These are a type of mutual fund with a portfolio comprising stocks, bonds, indices, currencies, etc. and are created to match/track the components of a market index such as the NIFTY. Just these 50 stocks represent 65% of the total market capitalization of all the companies listed on the NSE. In other words, say you added up the market caps of all the 1,300 companies on the NSE – the 50 NIFTY companies would constitute 65% of this total and the balance 1250 companies total upto 35%. Even of all the trades done on the NSE, about 50% are in just these 50 stocks.

Below are the criteria which are used in selecting the 50 stocks of NIFTY 50:

It is, of course, important to remember that the index is nothing but a collection of stocks and equities in general can be volatile in the short term. Over the long term, investing in the NIFTY 50 Index presents a great gateway into the stock market and is a good opportunity to create wealth. On Jan. 22, 2024, India’s stock market overtook Hong Kong’s to become the fourth-largest in the world.

As with other major stock markets and indexes, such as the S&P 500, companies must meet market capitalization and liquidity requirements before they may be listed and included in the index. Nifty strategy indices track the performance of a portfolio of stocks based on a combination of factors such as quality, value, alpha and low volatility. It comprises total value of 30 stocks of companies which are listed on the BSE. Indeed, these stocks belong to the largest corporations in India and, thus, represent the Indian economy’s performance at large. The market capitalisation of companies is determined by calculating the Nifty. It involves multiplying the company’s share price with the equity to calculate market capitalisation.

The NIFTY 50 index is a broad market index that consists of 50 large and liquid stocks listed on the NSE. It uses the NIFTY 50 to measure companies’ performance or portfolios using weighted average and market capitalization. Bombay Stock Exchange (BSE), on the other hand, uses Sensex to measure the total value of 30 stocks of large companies listed on the BSE. India Index Services & Products Ltd. (IISL) unser NSE group company provides indices and index-related services for the stock exchange. Nifty indices comprise broad market indices, sectoral indices, thematic indices, strategy indices, fixed income, and hybrid indices.

1. Furthermore, in index, stocks do not only belong to a specific industry such as pharma, banks, instead, they are picked up from all the major sectors.
2. The sensex movements are tracked regularly which helps in analyzing the overall growth, industry-related development.
3. Index is also referred to as an indicator which serves as a benchmark to analyze the performance of a portfolio’s returns.
4. For instance, TCS, Asian Paints, Maruti Suzuki India Ltd, HDFC Bank, RIL etc., are components of the Nifty 50.

Nifty 50 is the most referred index to track how the stock market is performing. The NIFTY 50 is the flagship index of the National Stock Exchange and one of the most recognized stock market indexes of India. It tracks the total of 50 stocks of huge companies related to various sectors and industries. The NIFTY 50 based stocks are all large-cap oriented companies which form almost three-fourth of the total capitalization in India.

It is one of the two most what is nifty index referenced barometers used by investors to track how the “stock market is doing”. The other is the Sensex – a similar index of 30 stocks managed by the Bombay Stock Exchange (BSE). The Sensex tracks the 30 largest, most liquid, and financially healthy companies listed on the Bombay Stock Exchange (BSE).

Types of Nifty Indices and What They Mean

Given the nature of the equity market, NIFTY 50 has witnessed many ups and downs since its inception in 1996. There have been years when the index witnessed a decline of 51%, and there have been years when the index climbed by more than 70%. But on a long-term basis, the index has risen significantly, and in the last 15 years, the NIFTY index has delivered an annual average return of 13%. The base date for NIFTY 50 is taken as 3rd November 1995, with an assigned base value of 1000 and a corresponding base market capital of Rs. 2.06 Trillion.

The stocks that comprise the Nifty 50 are well-established companies with a global footprint. For instance, TCS, Asian Paints, Maruti Suzuki India Ltd, HDFC Bank, RIL etc., are components of the Nifty 50. Moreover, Nifty consists of several sub-indices such as Nifty Next 50, Nifty Auto Index, Nifty Bank Index, Nifty IT Index, Nifty FMCG Index etc. Having said that, even within those 50 stocks, there is a lot of concentration at a stock level – the top 5 stocks of the NIFTY represent 40% of the weight of the NIFTY. As of November 30, 2023, the company’s portfolio included more than 350 Nifty-branded indices.

When he is not writing, he enjoys documenting the community’s ethnic knowledge, and travels to explore rural hotspots.

What Are Some Other Nifty Indexes?

It represents more than 40% of the total market capitalization of the BSE. This index was launched in 1986 and provides time-series data from April 1979 onward. Investors interested in the returns that that market may offer can trade ETFs that track the Nifty 50. It is also used as a benchmark for financial products traded on the NSE such as fund portfolios, index-based derivatives, and index funds. NIFTY 50 indices are computed based on a float-adjusted and market capitalisation weighted method.

One, buy stocks directly in the same percentage as their weightage in NIFTY 50. The second option is to invest in Index Mutual Funds that track NIFTY 50. These index Mutual Funds replicate the NIFTY 50, i.e., have a portfolio precisely like the index. So, a NIFTY 50 index fund will have the 50 stocks in the same proportion as the NIFTY 50, and all you need to do is invest whatever amount you want to invest in these funds. As, indices play a crucial role in defining the flow of the stocks in a certain direction and thus, they are considered as the ‘barometer’ of the stock market. Let’s have a look at the two prominent indices of the Indian stock market in more detail and also know the major differences between them.