What is Nifty: All You Need to Know in 2022

The NIFTY 50 is a benchmark stock market index that represents the weighted average of the 50 largest companies listed in the National Stock Exchange (NSE). NSE Indices (previously known as India Index Services & Products Limited) are a wholly owned subsidiary of the NSE Strategic Investment Corporation Limited. The Nifty 50 was officially launched on April 21st, 1996. Let’s find out more about this famous Indian benchmark index.

What is Nifty: Definition, Composition and Calculation

The term Nifty, is a portmanteau of National and Fifty. The index consists of 50 actively traded stocks. The National Stock Exchange (NSE) launched its primary benchmark index Nifty on April 21st, 1996. Nifty is primarily an equity benchmark index which was introduced on April 21st, 1996, by the National Stock Exchange. Nifty is the broad index of the National Stock Exchange (NSE). NSE is a leading stock exchange in India. On June 12, 2000, the NSE commenced trading in derivatives with index futures. The futures contracts are based on the Nifty 50. On June 4th, 2001, the NSE also introduced trading in index options. In general and by definition, the Nifty consists of 50 actively traded stocks. However, the Nifty actually has 51 stocks currently. Two other names for Nifty are Nifty50 and CNX Nifty. Nifty’s current ownership belongs to India Index Services and Products Ltd. (IISL). IISL is a company that focuses on indices as its core product. The Nifty is one of the largest Indian financial products with an exosystem that includes ETF, ETF F&O and other index funds and OTC derivatives.

Which companies make up the Nifty50?

For a company to be included in the Nifty50, it needs to fulfill the following criteria:

  • Liquidity –  The stock needs to be traded at an average cost of 0.50% or less over the duration of the last 6 months.
  • Float adjustment –  The float adjusted market capitalization of the firm should be at least twice as much as the smallest index constituent at present.
  • Domicile – The firm must be domiciled in India and trade on the NSE.

How to calculate Nifty?

The calculation of Nifty involves the free float market capitalization weighted method. In this method, the total market value of the stocks relative to a particular base period is reflected in the level of the index. Here are some further descriptions of the terms:

Market Capitalization = Equity Capital * Price

Free Float Market Capitalization = Equity Capital x Price * Investible Weight Factor

Index Value = Current Market Value / Base Market Capital * Base Index Value (1000)

*IWF is used to determine the number of shares that are available for trading. The value of the scrip varies day to day while the index is also calculated daily on a real time basis. The close price on November 3rd, 1995 is the base period that is selected for calculating Nifty50. The base capital is Rs 2.06 trillion and the base value is 1000.

How is Nifty different from Sensex?

Both the NSE’s Nifty and BSE’s Sensex are benchmark stock market indices that are targeted towards large cap stocks. Both the Nifty and the Sensex indicate a market’s overall performance and strength. The Nifty reflects the value of the National Stock Exchange (NSE) whereas Sensex is the stock market index for the Bombay Stock Exchange (BSE). The most distinct difference between the Nifty and the Sensex is the number of stocks contained within them. While the Sensex is made up of just 30 stocks, the Nifty has 50. The portfolio of the Nifty is generally more diverse when compared to the Sensex. The NSE in general also witnesses more trading per day than the BSE.

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