Nifty 50

When we talk about the 'index of a stock market,' it means a stock market portfolio consisting of its securities based on their market capitalization and category. Indexes are crucial because they serve as a representation of a country's market and economy. For example, Nifty-50 is the benchmark index of the NSE (National Stock Exchange) of India. Benchmarks are indices that combine multiple securities to represent a specific aspect of the market.

The Nifty 50 index measures the performance of the top 50 blue-chip companies on the National Stock Exchange, as per their market capitalization. Even though the Nifty index only includes 50 of the 1600 companies that trade on the NSE, it accounts for up to 66% of the NSE's float-adjusted market capitalization (float-adjusted means when an index considers only the shares that are available for investors and not held by other companies or government). As a result, it is regarded as an accurate representation of the Indian stock market. Some of the features of the Nifty 50 index include-

a) The base year in the calculation is 1995, and the base value at which the index started trading was 1000
b) The Nifty 50 index is computed using the top 50 stocks on NSE
c) The selection of Nifty 50 companies is based on the free-float market capitalization
d) The Nifty index is managed and owned by IISL (India Index Services and Products Limited)
e) The choice of Nifty 50 companies is made from different sectors

The list of Nifty 50 companies is not static. It is refreshed semi-annually based on averages from the six months' data. The data considered is as per the month ending January and July. Stocks in the Nifty 50 are replaced (if any) on the last trading day of March, June, September, and December. Market participants are given four weeks' notice before they make any changes to the index. The parameters that make a company one among the Nifty 50 companies' list are-
a) The company should be based in India
b) For 90% of the observations for a portfolio of Rs.10 crores, the company's stock should have transacted at an average impact cost of 0.50% or less during the last six months. In simple terms, impact cost is the cost that an investor must pay to execute their buy or sell order compared to the ideal cost of that security.
c) The company's average free-float market capitalization must be at least 1.5 times that of the free-float market capitalization of the minor index constituent. Here, index constituent means a company in the index.

The Nifty 50 stock list consist of the Nifty 50 companies from different sectors (as per the month ending June 2021), including-
1. Financial services- this sector has a maximum weightage of 37.17%
2. IT- 17.54%
3. Oil and gas- 11.24%
4. Consumer goods- 10.85%
5. Automobile- 4.94%
6. Pharma- 3.66%
7. Metals- 4.07%
8. Construction- 2.83%
9. Cement and cement products- 2.71%
10. Telecom- 1.94%
11. Power- 1.68%
12. Services- 0.73%
13. Fertilizers and pesticides- 0.65%

The BSE's (Bombay Stock Exchange) Sensex was the only index of the Indian equity markets before introducing the Nifty index. Since April 1995, the Nifty index has been traded and is well suited for benchmarking index funds and index-based derivatives. The NSE began trading products with index futures on June 12, 2000. The Nifty 50 is the basis for the futures contracts. Later, on June 4, 2001, the exchange began trading index options.

In July 2017, the Nifty 50 surpassed the 10,000 level. The Nifty 50 price hit two consecutive 1000-point marks in the same year for the first time in ten years, i.e., the Nifty 50 hit both 9,000 and 10,000 for the first time in 2017 alone. The NSE Nifty-50 index took 21 years to rise from 1,000 to 10,000. From the Nifty 50 index launch till the present date, the index has given a return of 11.6% CAGR (compound annual growth rate). Nifty 50 advanced further in scale in 2021, crossing the 15000 marks in April.

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  I-Sec is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  Investments in securities market are subject to market risks, read all the related documents carefully before investing. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents are solely for informational and educational purpose.