The Nifty 50 index is one of the most tracked benchmarks for the performance of the Indian stock markets. It is owned by the National Stock Exchange (NSE). The Nifty 50 includes the largest and most liquid companies listed on the NSE, which collectively represent over 65% of the total market capitalisation. It covers a diverse range of sectors from IT, banks, auto, pharma and FMCG, offering investors exposure to the drivers of the Indian economy. This blog post will explain in detail about the Nifty 50 index, how it works and its benefits.
What is the Nifty 50 Index?
The Nifty 50 index was launched on November 3, 1995, with a base value of 1,000. To ensure continuity, changes to the index constituents are made twice a year in June and December based on the previous six months' data. The weight of individual stocks is determined based on their free float market capitalization such that no single stock dominates the index. When corporate actions like stock splits, rights issues etc. take place, all necessary adjustments are made by IISL to the index daily.
How does Nifty 50 work?
The actual calculation of the Nifty 50 index involves dividing the free float market cap value of the index by a fixed base market cap value. This base market cap value is adjusted whenever stocks are added or removed from the index to ensure the continuity of the index levels. The fixed market cap prevents a steep movement in the index due to changes and ensures stability for benchmarking and tracking fund performance over the long run. The index calculation also adjusts for stock corporate actions automatically without affecting the index value.
Significance for Investors
The Nifty 50, being a key benchmark, holds importance for a variety of market participants like investors, fund managers, traders and so on. The following are some of the important uses of the index:
Understand overall market sentiments and investor confidence levels
Get exposure to the Indian economy by investing in the index through ETFs and index funds
Measure the performance of actively managed funds against the Nifty 50 index
Trade the index derivatives like Nifty futures and options for hedging risk
Understand broader market expectations and outlook over short to medium-term
Conclusion
As the Nifty 50 covers influential large-cap companies representing top industries, the index movement mirrors the underlying business and economic developments in India. Monitoring the Nifty 50 provides insights into the health of Corporate India and the broader economy. Retail investors looking for a trusted platform for investing in stocks and tracking benchmarks like the Nifty 50 index can consider IIFL Securities. IIFL Securities aims to provide a favourable environment for investors to track and benefit from market movements, by combining comprehensive research and advisory support with robust and efficient trading platforms.