National Stock Exchange Fifty or NIFTY 50 is the index of India’s top-performing equity stocks that are listed in the National Stock Exchange. Along with SENSEX, NIFTY 50 is the yardstick to measure the economic performance of the country.
Since its inception in 1996 as the flagship index of SENSEX India, it has evolved into a vital instrument that captures India’s economic pulse. The index includes industry giants like Reliance Industries, Tata Consultancy Services, HDFC Bank, Infosys, and ITC.
The top 50 companies constituting NIFTY 50 are chosen considering factors like market capitalization, liquidity, and sector representation. The list undergoes periodic review and updation to accommodate emerging players and maintain the trend.
As a prominent indicator of market trends, policymakers and business analysts closely watch NIFTY 50. Foreign Investors monitor the movement of NIFTY 50 to gauge India’s investment climate.
You now know that NIFTY 50 is an index that represents the performance of the top 50 companies. Before delving into the intricacies of NIFTY 50, let us see what an index is.
What is an Index?
A Stock index is a statistical measure that represents the performance of a specific group of stocks in a financial market. It serves as the paradigm, providing investors and other market participants with a way to assess the overall health and direction of a particular industry, sector, or stock market of the country as a whole.
An index is the representation of the performance of its constituent stocks. To generate an index, stocks with matching attributes are grouped based on the industry type, sector, company size, capitalization, etc.
So you know what an index is, and NIFTY 50 is the index we discussed. So, let us go back to NIFTY.
Eligibility Criteria for NIFTY Index Listing
To be on the NIFTY Index, a company must:
- Be based in India and registered with the National Stock Exchange.
- Have stocks that are easy to buy and sell without affecting their price too much, and this should be consistent over six months.
- Trade its stocks actively, with transactions happening all the time during the last six months.
- Have a large amount of its stock available to the public to trade, and this amount should be more than what the smallest company on the NIFTY Index has.
- Also, if the company has shares that come with special voting rights, these are okay for the NIFTY Index too.
Every six months, the NIFTY Index is updated. They look at how well a stock has done in that time. If a company meets all the requirements, its stock might be added or removed from the list. If there are any changes, they tell the affected companies four weeks before they update the index.
How is the NIFTY Index Calculated?
The NIFTY index, officially known as NIFTY 50, is calculated using the free-float market capitalization methodology.
Wondering what is free-float market capitalization? Let us break the jargon.
Free float is the portion of a company’s total outstanding shares that are available for trading in the open market. It is the company’s shares that are not owned by promoters, strategic investors, or other entities with major stakes in the company. It is crucial in the calculation of indices because it ensures that the index reflects the market value of tradable shares.
Using free-float market capitalization in calculating indices will ensure that the companies with large promoter or government holdings will not get an advantage in the market. This approach will accurately represent the investable shares available in the market.
Let us come back to the calculation of NIFTY 50:
- The first step is to select actively traded stocks from various sectors of the economy. As the market is volatile, so are the companies. The list, therefore, is not permanent.
- For each constituent stock, free-float market capitalization is calculated by multiplying the stock’s current market price by the number of shares freely tradable in the market.
- The index value is calculated by summing up the free float market capitalization of all the constituent stocks. This total value represents the overall market capitalization of NIFTY 50.
- An index divisor is used to ensure the continuity of index value across different periods and stock splits. The main purpose of using this numeral value is to maintain consistency and continuity. This adjusted numeral makes sure the impact of events affecting the index, like the addition or removal of constituent stock, does not result in an abrupt change in the overall index.
- Index calculation: The NIFTY index is calculated by dividing the sum of the free-float market capitalization of constituent stocks by the index divisor.
We hope you are not baffled by this calculation method of NIFTY.
Let us now see the current list of top companies. The rearrangement of this list happens every six months. So, this is not a statistic list. But we know, As we have been talking about the NIFTY 50 and top companies, you will be excited to know the toppers of the Indian stock market index.
We will not exhaust you with 50 companies here. Let us see a few of them and their respective sectors as of February 2024.
| Company Name | Sector |
| Adani Enterprises Ltd. | Metals & Minerals Trading |
| Adani Ports & Special Economic Zone | Transport Infrastructure |
| Apollo Hospitals Enterprise Ltd. | Healthcare Services |
| Asian Paints Limited | Consumer Durables |
| Axis Bank Ltd. | Banks |
| Bajaj Auto Limited | Automobiles |
| Bajaj Finserv Ltd. | Finance |
| Bajaj Finance Ltd | Finance |
| Bharti Airtel Ltd. | Telecom – Services |
| Bharat Petroleum Corporation Ltd. | Petroleum Products |
The above list is according to the alphabetical order and not the top 10. If you are curious to know the top 50 giants of the Indian stock market, you can visit NIFTY 50 and download the index.
Now you know what NIFTY 50 is and how it is calculated. We have some brownie points for you if you want to invest in financial products that track NIFTY 50.
Suggested Read: Stock Market – A Complete Guide
Benefits of Investing in Finacial Products Tracking NIFTY 50
- Liquidity
- Stability and Long-term Growth
- Ease of Access
- Representative of the Market
- Benchmark of Market Performance
- Diversification
Frequently Asked Questions About NIFTY 50
What is NIFTY 50?
NIFTY 50 is the benchmark stock index of the National Stock Exchange of India. It represents the performance of the largest and most traded. stocks across different sectors in India
What is the purpose of NIFTY 50?
It provides investors, policymakers, and other participants in the market with the overall performance of the market and its trends.
How often is the NIFTY 50 reconstituted?
To reflect the changes in the market trend, it undergoes a semi-annual review. If necessary changes are needed, it will rebalance itself every six months.
What are the sectors represented in the NIFTY 50?
As the aim of NIFTY 50 is to provide a diversified view of the Indian economy, it represents various sectors, including Information technology, Finance, energy, consumer goods, and many more.
Can I directly Invest in the NIFTY 50?
you cannot invest directly in the NIFTY 50 index. But you can invest in financial products that track its performance, such as index funds or exchange-traded funds (ETFs) linked to the index.
