Do you constantly come across the terms NSE, and Nifty without understanding what is being referred to? Here’s a guide to Nifty: India’s most popular benchmark index for equity shares.
What is Nifty in Share Market?
Nifty is a popular stock market index that has been introduced by the National Stock Exchange (NSE). ‘Nifty’ is a mix of the words “National Stock Exchange” and “fifty.” This is because NIFTY 50 is a flagship benchmark index by the NSE showcasing the 50 top-performing equity stocks that are being traded on the platform. There are a total of 1600 stocks trading on the NSE in a single day.
Now that we know what is Nifty 50’s goal – the stocks on its index span across 12 different sectors in the Indian economy. These include financial services, telecommunications, information technology, consumer goods, metals, entertainment and media, pharmaceuticals cement, fertilizers and pesticides, automobiles, energy, and more. Nifty follows the patterns and overarching trends of blue-chip companies. These are the largest and most liquid companies in India.
NIFTY 50 is one of two national benchmark indices in India. The other benchmark is SENSEX, which comprises the 30 highest performing stocks on the Bombay Stock Exchange. Nifty alone contains a large number of sub-indices. These are the NIFTY IT, NIFTY Next 50, and NIFTY Bank, each detailing separate asset classes, sectors, or segments.
Criteria for Eligibility for NIFTY Listing
To keep up with the latest stocks and trends, NIFTY is reconstituted every 6 months. During this time it considers the 6-month performance of stocks and checks for whether a company’s shares fulfill the eligibility criteria. NSE Indices Limites has a team of professionals that currently manage the NIFTY index.
This is an index Advisory Committee that offers guidance and expertise on large scale issues that relate to equity indices. Accordingly, the index managers will remove or include old or new stocks to the benchmark. With respect to new additions, companies are involved 4 weeks prior to the reconstitution. To be eligible for listing on NIFTY, the following criteria are necessary.
- The company must be registered with the National Stock Exchange (NSE) while being a domicile of the country.
- The company’s stocks should be highly liquid in nature. This is measured by the average of their impact cost. Impact cost is the price of trading a single security in relation to the index’s weight as seen through the company’s market capitalization. For a period of 6 months, the company’s impact cost should be less than or equal to 0.50% or lower with 90% of the sightings and analyses made on a portfolio over ₹10 crores.
- The trading frequency of the company should be 100% in the past six months.
- The company should have a free-floating average market capitalization. The market capitalization should be 1.5 times greater than the smallest company on the index.
- Any companies that have DVR shares, that is, shares with ‘Differential Voting Rights’ are also eligible to be a part of Nifty 50.
Apart from the 6-month reconstitution routine undertaken by Nifty, the index also goes through reconstitution when a company undergoes events like spin-offs, suspensions, compulsory delisting, or mergers and acquisitions. Additionally, Nifty also conducts a quarterly screening of each of its companies to keep track of whether they are adhering to the portfolio’s regulations for ETFs and Index Funds. SEBI, or the Securities and Exchange Board of India, keeps putting out new mandates that companies must adhere to, else they may be delisted from indices like Nifty.
How is NIFTY 50 Calculated?
Indices for Nift 50 are computed through a float-adjusted as well as market capitalization-weighted method. The level of index showcases the aggregate of the market value of shares present in it for a certain duration. This base duration for Nifty is November 3rd, 1995. The index’s base value is considered to be 1000 and its base capital is ₹2.06 trillion. The formula to calculate the index’s value is as follows:
Value of Index= Current market value / (1000 * Base Market Capital)
The formula is not the only means by which value is calculated. Changes in corporate-procedures such as stock splits, rights insurance and more are also taken into account. As NIFTY is a benchmark against which all equity share markets in India are considered, it regularly conducts index maintenance checks. This ensures it is stable and working effectively so that it can persist as a benchmark index for the country.
Major Milestones of Nifty
The following table describes the major milestones of Nifty in the past 3 decades.
Top Companies Listed Under NIFTY
Below is the table that demonstrates the companies listed under Nifty 50 in the period of July – December 2023. The below stocks are selected as the top 10 Nifty 50 stocks with the highest market cap.
|Closing Price (in ₹)
|Trend for the past 1 year
|Reliance Industries Ltd
|Oil & Gas – Refining & Marketing
|Tata Consultancy Services Ltd
|IT Services & Consulting
|HDFC Bank Ltd
|ICICI Bank Ltd
|IT Services & Consulting
|Hindustan Unilever Ltd
|FMCG – Household Products
|FMCG – Tobacco
|Bharti Airtel Ltd
|State Bank of India
|Bajaj Finance Ltd
Importance of NIFTY for Investors
NIFTY holds paramount importance for investors as a pivotal benchmark for the Indian stock marketplace. Serving as a benchmarking tool, NIFTY represents the pinnacle of 50 agencies at the countrywide stock exchange, permitting buyers to gauge their portfolio’s overall performance in opposition to the broader marketplace.
additionally, the NIFTY index offers insights into marketplace traits and sentiment, permitting buyers to music sectoral and enterprise overall performance. These statistics prove invaluable for knowledgeable decision-making. investors regularly utilise NIFTY as a key element in shaping their investing techniques, analysing its overall performance to determine the market course. This analytical method helps in deciding on specific shares or sectors and adjusting basic portfolio asset allocation, underscoring NIFTY’s significance inside the funding landscape.
Differences between NIFTY and SENSEX
Here are the major differences between NIFTY and SENSEX:
|NIFTY comprises the top 50 companies.
|SENSEX comprises the top 30 companies.
|National Stock Exchange (NSE)
|Bombay Stock Exchange (BSE)
|Free-float market capitalisation weighted.
|Free-float market capitalisation weighted.
|50 prominent companies listed on the NSE.
|30 prominent companies listed on BSE.
|NIFTY reflects the performance of 50 companies.
|SENSEX reflects the performance of 30 companies.
|NIFTY represents a broader range of sectors.
|SENSEX represents a narrower range of sectors.
|Reflects overall sentiment and trends.
|Reflects overall sentiment and trends, but with a smaller sample size.
|Impact of Large Companies
|The performance of large companies has a relatively higher impact.
|The performance of large companies carries more weight due to limited constituents.
|NIFTY is a widely recognised benchmark for Indian equity markets.
|SENSEX is one of the oldest and most prominent stock market indices in India.
|Example ETF/Index Fund
|NIFTY ETFs or index funds replicate NIFTY’s performance
|SENSEX ETFs or index funds aim to replicate SENSEX’s performance
This table highlights the key distinctions between NIFTY and SENSEX, encompassing aspects such as composition, exchange, base year, calculation methodology, and overall significance.
The word Nifty can be simply understood as a fusion of the words National Stock Exchange and Fifty denoting the stock exchange’s top 50 stocks. The NIFTY50 index is one of the most popular benchmark indices in the stock market. The formula to calculate the index’s value is as follows: Nifty aka National 50 is an index that is operated by the National Stock exchange denoting the Top 50 high-performing stocks of NSE. Whereas, Sensitive Index aka Sensex is operated by the Bombay Stock Exchange and comprises 30 of the largest and most actively traded stocks. Nifty stands for National 50 which is an index operated by the national stock exchange. There are several types of Nifty indices, each catering to specific market segments. Notable ones include Nifty 50, Nifty Next 50, Nifty Midcap 50, Nifty Smallcap 50, Nifty Bank, Nifty IT, Nifty Pharma, and Nifty FMCG. These indices provide insights into the performance of various sectors within the Indian stock market. The full form of Nifty is derived from “National” and “FIFTY.” Nifty 50, introduced by the National Stock Exchange (NSE) of India, represents the top 50 companies listed on the exchange, serving as a benchmark index for the broader performance of the Indian stock market.
What is Nifty in simple words?
How is Nifty calculated?
Index Value = (Current Market Value/Base Market Capital) * 1000, wherein
Base duration for Nifty = November 3rd, 1995.
Base value of Index is considered as 1000
Base capital of Index is considered as ₹2.06 trillion
What is Sensex vs Nifty?
What is the difference between Nifty and stocks?
It comprises the top 50 stocks of the NSE. Whereas, stocks is a type of investment instrument that essentially represents an ownership share in a particular company.
How many types of Nifty are there?
What is the full form of Nifty?
The word Nifty can be simply understood as a fusion of the words National Stock Exchange and Fifty denoting the stock exchange’s top 50 stocks. The NIFTY50 index is one of the most popular benchmark indices in the stock market.
The formula to calculate the index’s value is as follows:
Nifty aka National 50 is an index that is operated by the National Stock exchange denoting the Top 50 high-performing stocks of NSE. Whereas, Sensitive Index aka Sensex is operated by the Bombay Stock Exchange and comprises 30 of the largest and most actively traded stocks.
Nifty stands for National 50 which is an index operated by the national stock exchange.
There are several types of Nifty indices, each catering to specific market segments. Notable ones include Nifty 50, Nifty Next 50, Nifty Midcap 50, Nifty Smallcap 50, Nifty Bank, Nifty IT, Nifty Pharma, and Nifty FMCG. These indices provide insights into the performance of various sectors within the Indian stock market.
The full form of Nifty is derived from “National” and “FIFTY.” Nifty 50, introduced by the National Stock Exchange (NSE) of India, represents the top 50 companies listed on the exchange, serving as a benchmark index for the broader performance of the Indian stock market.