Introduction to Nifty
Are you a beginner or an expert investor? Well, in both cases, we have the perfect option for you to start or uplift your investment journey. Let me introduce you to Nifty.
So what is Nifty? Nifty – National Stock Exchange Fifty is a benchmark index that represents the fifty (50) largest and most liquid stocks of the Indian security market. Established in 1996 as CNX nifty, NSE Indices Limited manages this index. Nifty is owned and managed by the India Index Service & Products Limited (IISL) an Indian specialized company.
Nifty timings are similar to equity segments, which is Monday to Friday from 9:15 am to 3:30 pm. Investors can either buy nifty through Index Mutual funds, or Exchange Traded Funds (ETF). They can also trade in Nifty via Futures and Options.
Today we will provide you with an A-Z guide about Nifty, its calculations, criteria, and working. Let’s get into!!
Eligibility criteria to get chosen for Nifty 50
Companies need to fulfill a list of criteria to get listed under Nifty
- The company must be an Indian company listed on the National Stock Exchange
- The stocks of those company which was included in the Nifty 100 and can be traded in the Future and Options (F&Os) can only become a part of the Nifty 50
- The company’s stock must be listed on the stock exchange for a minimum period of six months before the Nifty index listing. The period in case of IPO is a minimum of one month.
- The company’s stock must be highly liquid. The maximum average cost of the stock should be 0.50% in the last six months for 90% of the observations on a portfolio of Rs. 10 crores.
- The company’s stock must be actively traded stocks
- Trading frequency of the company in the past six months must be 100%
- Average free-floating market capitalization of the company should be a minimum of 1.5 times higher than the smallest company on the index
- The company which offers Differential Voting Rights shares can also be a part of the Nifty 50
How is nifty calculated?
Calculations in Nifty are based on free-float market capitalization. These stocks are calculated based on their market capitalization.
Market Capitalization= Share Price * Equity Captial
Free Float Market Capitalization= Share Price * Equity Capital * Investable Weight Factor (IWF)
The investable Weight Factor is a factor that determines the number of shares available to trade.
Nifty is calculated using its base value, which is 1000. And the base year of Nifty is 1995.
Nifty Index Value = Current Market Value / (Base Market Capital * 1000)
However, the methodology on how to calculate Nifty is reviewed and updated in specific intervals. This is done to represent the market conditions precisely.
Sectors and Top Companies under Nifty
Nifty 50 covers numerous sectors and companies of Indian Economy, which includes
- Banking/Finance – HDFC Bank Ltd, ICICI Bank Ltd, SBI, Kotak Mahindra Bank Ltd, IndusInd Bank Ltd, & Axis Bank Ltd. Bajaj Finance Ltd & Housing Development Finance Corporation Ltd.
- Cement and Construction – Larsen & Toubro Ltd, Ultratech Cement Ltd, Tata Steel Ltd, JSE Steel Ltd, & Grasim Industries Ltd.
- Chemicals – UPL Ltd, Hindalco Industries Ltd,
- Insurance – Bajaj Finserv Ltd, SBI Life Insurance Company Ltd, & HDFC Life Insurance Company Ltd.
- Food & Beverages – Tata Consumer Products Ltd, Britannia Industries Ltd, Nestle India Ltd, & ITC Ltd.
- Oil & Gas – Reliance Industries Ltd & Bharat Petroleum Corporation Ltd.
- Technology – NTPC Ltd & Power Grid Corporation of India Ltd,
- Manufacturing – Hindustan Unilever Ltd, Adani Enterprises Ltd, Asian Paints Ltd, Titan Company Ltd,
- IT services & Consulting – Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd, & Tech Mahindra Ltd.
- Pharmaceutical – Sun Pharmaceutical Industries Ltd, Cipla Ltd, Divi’s Laboratories Ltd, Dr. Reddy’s Laboratories Ltd, Alkem Laboratories Ltd, & Apollo Hospitals Enterprise Ltd.
- Automobile – Maruti Suzuki India Ltd, Tata Motors Ltd, Mahindra & Mahindra Ltd, Bajaj Auto Ltd, MRF Ltd, Eicher Motors Ltd, & Hero Motocorp Ltd.
- Telecom – Bharti Airtel Ltd
- Media – PVR Ltd, Inox ltd, Sun Tv network Ltd, & Zee entertainment enterprises ltd.
- Ports – Adani Ports and Special Economic Zone Ltd
- Mining – Coal India Ltd
Nifty milestones
Nifty has witnessed some crazy movements and milestones in the past years since its incorporation. Some of which are listed below,
- NSE was recognized as a stock exchange in 1993 and was launched with a base value of 1000 on 22nd April 1996
- An IT book made Nifty touch 1800 in the year 2000. In 2006, a service sector book led nifty to reach 3000
- Nifty crossed the 7000 market in 2014 and 10000 mark in July, 2017
- When COVID hit, the Nifty dropped below 8000 points
- It again reached the 10000 mark in June 2020
- Nifty touched the 15000 mark in 2021 because of COVID-19 vaccine
- Nifty touched its all-time high point in July 2023
Benefits of Investing in Nifty 50
Nifty consists of the top 50 well-performing stocks in the Indian stock market and investing in the same can bring numerous advantages.
- Returns
Nifty 50 has been offering significant returns over the years through its index-based funds. The movement of this index reflects the performance. Investors can expect to yield significant returns over long-term investments. - Diversification
Nifty consists of 50 large-cap companies which offer investors diversification. It not only reduces the overall risk but also helps in better performance and reduced loss. - Low cost
Investing in Nifty is a cost-effective strategy in comparison to investing in individual stocks. Nifty has minimum involvement of fund managers which helps in the reduction of operating costs and thus proves to be cost-saving for investors. - Liquidity
Nifty 50 is highly liquid, investors can easily buy or sell their shares without having any impact on the price of the index. - Transparency
As there is no fund manager bias or active management involved during the selection of stocks, it ensures transparency. Nifty is a well-regulated index that provides accurate information to investors.
Factors causing movements in Nifty
Numerous factors cause movements in Nifty, some of which are,
- Global recession impacts the index funds causing the performance of Nifty
- A rise in Inflation negatively impacts the index as well
- Exchange rates also cause movements in the Nifty
- Government and RBI rules and policies play a prominent role in causing movements in Nifty. From capital market fluctuations to interest rates, everything impacts the financial strength of the country.
Difference between Nifty and Sensex
| Basis | Nifty | Sensex |
| Full form | National Fifty | Sensitive Index |
| Number of Companies | 50 | 30 |
| Operated by | Index and Services and Products Limited (IISL) | BSE |
| Exchange & Location | Nifty is based on the NSE. NSE is located in Exchange Plaza, Bandra Kurla Complex, Mumbai. | Sensex is based on BSE. BSE is located in Dalal Street, Mumbai. |
| Base Year | 1995 | 1978 |
| Base Value | 1000 | 100 |
| Number of companies | Nifty tracks performances from companies (top 50) listed in NSE. NSE has 1600 companies listed. | Sensex tracks performances from companies (top 30) listed in BSE. BSE has 5000 companies listed. |
| Method of calculation | Free float market capitalization | Full market capitalization method |
| Sector representation | Nifty represents a broader range of sectors covering companies over 24 sectors | Sensex represents a narrower range of sectors covering 13 sectors |
| Benchmark | Benchmark to consider the performance of top large-cap companies | Benchmark to consider the overall performance of the Indian stock market |
Bottom line
Nifty is a benchmark index of the National Stock Exchange which tracks the 50 largest stocks of the exchange. It is calculated using the free float market capitalization method.
If you are an investor, Nifty index funds are the perfect option for you to start your investment journey. However, it is advisable to learn and understand better about diversification, costing, liquidity, yield returns, growth potential, and your financial goals.
With the changing economy Nifty is still a reliable option in the Indian stock market prevailing through all the ups & downs. Long-term investors can generate great returns through their investments in Nifty because of the compounding effect. It is also a viable option for beginners who are willing to invest in small cases to gain the benefit of diversification, professional fund management, lower expense ratio, & cost saving. Small case has their own benefit with chances of growth potential in Indian stock market.
FAQs
- Who owns Nifty?
- Nifty 50 was introduced by NSE. However, the index funds are owned and managed by Indian Index Service & Products Limited (IISL), which is an Indian-specialized company.
- Is it possible to buy on NSE and sell on BSE?
- It is possible to buy on NSE and sell on BSE through your Demat account. This option is available for investors and not for Intraday traders.
- What is Bank Nifty?
- Bank Nifty is an index that represents the top 12 most liquid stocks from the banking sector of the NSE.
- Which is better Nifty or Sensex?
- NSE and BSE are the two top stock exchanges of the Indian stock market which depicts the state security market. Nifty is wider than Sensex as nifty includes the top 50 large-cap stocks whereas Sensex includes the top 30. Nifty can be a suitable option from an investment point of view as it provides diversification, cost saving, and better returns.
- How many companies are listed in Nifty?
- The top 50 largest and most liquid stocks are listed in Nifty, out of the 1600 stocks which are listed in the National Stock Exchange.
- How to invest in Nifty?
- Investors can invest in Nifty by way of,
- Mutual Funds
- Exchange-Traded Funds, and
- Nifty Futures and Options.
- How to trade in Nifty Intraday?
- Investors can trade Intraday through Future & options (F&O)