Nifty, also known as Nifty 50 or CNX Nifty, is the National Stock Exchange index. Launched in 1996, it includes the top 50 traded companies listed on the NSE. The companies are selected based on free-float market capitalisation. The term 'free float' refers to the shares available on the market for purchase transactions by the general public.
This index gauges stock market movement. For example, if the Nifty is down, it indicates a bear trend, and when it is up, it suggests a bullish trend. Now that you know what Nifty is, here is a detailed insight into this index.
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Stocks under Nifty 50
The list of stocks under Nifty 50 is detailed in the following table.
Parameters for choosing stocks under Nifty 50
Free-float market capitalisation is not the sole criterion for a stock to be included in the Nifty. The stocks must also satisfy the following conditions.
- The stock must have sufficient liquidity. That means if you, as an investor, want to sell the holdings, the buyer should always be available. This process is termed as a stock with high trading volume. In simple terms, there should be broad investor participation.
- In order to qualify for Nifty, the stock must be available for derivative trading under the futures and options segment.
- The stock must hold a listing history of at least six months on the exchange. If the company has launched its shares for the general public via an Initial Public Opening (IPO), then such stocks must be listed for at least a month.
- The stock issuing company must have a trading frequency of 100% in the previous six months.
- Companies with their stock listed and differential voting rights shares are eligible to qualify for the Nifty index.
Update process of Nifty
The Nifty 50 list is evaluated every six months. If the reviewing authority finds any stock not meeting the above-listed criteria, it will be replaced with another stock.
The NSE informs the general public and other market participants about the Nifty update at least four weeks before the modifications become effective. This gives investors like you or mutual fund houses enough time to align their portfolios with the updated list.
It is worth mentioning that when any stock is removed from this index, a sharp decline in its value is seen for a short time. Conversely, stocks included in the list see a jump in their share price.
How Nifty is calculated?
Nifty is calculated using the following formula:
Index Value = (Current Market Cap / Base Market Capital) x 1000
Here’s a hypothetical example to illustrate the calculation:
- Assume the base market capitalisation is Rs 10,000 crore
- The current market capitalisation, which is the sum of the market capitalisation of all 50 companies adjusted for their free float, is Rs 12,000 crore
Using the formula, the index value would be:
(12,000 ÷ 10,000) × 100
= 1200
So, the Nifty 50 index value would be 1200, indicating that the market has grown by 20% from the base period. This method ensures that the index only reflects the market movements of its constituents and is not affected by changes in the number of shares.
Factors affecting Nifty
Here are the key elements that cause fluctuations in the Nifty:
- Indicators like GDP growth, inflation rates, and industrial production
- The financial track record of companies listed on the Nifty 50
- Reserve Bank of India (RBI) decisions regarding interest rates influence investment choices and borrowing costs, affecting stock prices.
- High inflation rates can erode consumer purchasing power and affect corporate profits, impacting the Nifty.
Conclusion
Nifty serves as a benchmark to gauge the movement of the Indian stock market. The index's importance lies in its ability to reflect market trends and sentiment, guiding investment decisions. Additionally, it offers a broad overview of the economy and serves as a reference point for various financial instruments.