What is Nifty 50 Index & Methods of Selecting Stocks in it?

On the markets, there are thousands of equities listed. We don't have the time to check all the rates on a daily basis, so we need an indicator that will tell us at a glance how the market is performing right now. An indicator of market performance, a stock index monitors the performance of a particular stock or of a group of equities.

Fri Apr 7, 2023

National Stock Exchange

In 1992, National Stock Exchange of India LTD was established. In April 1993, SEBI recognised it as a stock exchange, and in 1994, it began operating with the introduction of the debt market. Shortly after, the stock market segment was introduced. 2018 from January to December, according to a report from the World Federation of Exchanges (WFE). The NSE was the first exchange in India to introduce screen-based or electronic trading. According to SEBI data, it has been in operation since 1994 and since 1995 has consistently held the title of biggest Indian stock exchange in terms of overall and median total turnover for equity shares.

Market Index

On the markets, there are thousands of equities listed. We don't have the time to check all the rates on a daily basis, so we need an indicator that will tell us at a glance how the market is performing right now. An indicator of market performance, a stock index monitors the performance of a particular stock or of a group of equities. A Market index is a number that represents the evolution of a group of values across time. A variety of equities that make up the Index's value movement is represented by the Index. On the NSE website, market indexes are separated into 4 categories.

1. Broad Market Indices

Broad-market indexes include the large, volatile stocks that are traded and listed on the Stock Exchange.

  • Nifty 50 PreOpen
  • Nifty Next Nifty
  • Nifty 100
  • Nifty 200
  • Nifty 500
  • Nifty Mid Cap 50
  • Nifty Mid Cap 100
  • Nifty Mid Cap 150
  • Nifty Small Cap 50
  • Nifty Small Cap 100
  • Nifty VIX

3. Fixed Income Indices

The NIFTY Fixed Income indices provide independent and thorough benchmarks for the Indian fixed income market, encompassing a wide range of fixed income assets such as government bonds, T-bills, corporate bonds commercial papers,etc.

  • Nifty GS 8-13 Yrs
  • Nifty GS 10Yrs
  • Nifty GS 10Yrs CLN
  • Nifty GS 4-8 YRS
  • Nifty GS 11-15 Yrs
  • Nifty GS 15 Yrs Plus
  • Nifty GS Compsite

4. Other Indices

  • Nifty Consumption
  • Nifty CPSE
  • Nifty Div Opps 50
  • Nifty Energy
  • Nifty Grow sect 15
  • Nifty INFRA
  • Nifty 100 Liq 15
  • Nifty Mid Liq 15
  • Nifty MNC
  • Nifty PSE
…More

Nifty 50 Index

The Nifty 50 Index is a collection of 50 equities chosen from various Indian economic sectors. The Indian equities that are the biggest and most liquid are top listed businesses, which are tracked by the index. Out of the roughly 1700 companies trading on the NSE Platform, 50 equities were chosen. Since it began trading in April 1996, the Index has been a good option for benchmarking and index-based derivatives. NSE Indices Limited, is the owner and operator of the NIFTY 50. (NSE Indices). The NIFTY 50 index's base period begins on November 3, 1995, and its base value is 1000.

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Certain Methology have taken into account when choosing the stocks for the NIFTY 50 Index.

  1. The NIFTY 50 index may include components of the NIFTY 100 index that are traded in the futures and options section of the NSE.
  2. The company must have its registered office in India and trade on the National Stock Exchange (both listed and traded and not listed but allowed to trade).
  3. For a portfolio of Rs. 10 CR, the security must have traded at an average impact cost of 0.50% or less over the previous six months for 90% of the observations.
                     a)  Impact cost is the price of carrying out a transfer in securities in accordance to its market capitalization-based index weight at any given period. The company's trading frequency should have been 100% in the previous six months. This is the percentage mark-up experienced while purchasing/selling quantity of a security compared to its optimum price — (best buy + best sell)/2.

4. Companies can join the NIFTY 50 index if their average free-float market value is at least 1.5 times more than the mean free-float market value of the index's lowest constituent.

a) The free float technique, which excludes shares held by entrepreneurs, insiders, and the govt authorities, multiplies the price by the number of outstanding shares to determine the market capitalization of the underlying index.

b) Free Floating Market Cap

Current Market Price * (Total Number of Shares – Locked Stocks )

Index Reconstruction

The index is reconstructed semi annually using data for the six months ending in January and July, respectively. The replacing of stocks in the NIFTY 50 index (if any) typically begins on the first working day after the expiration of the F&O contract in March and September. The market participants are informed four weeks in advance of any index replacement.

Pravin Khetan

Stock Analyst since 2010

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