National Stock Exchange Fifty
Nifty is one of the two important equity benchmarks in India that was introduced by National Stock Exchange on April 21, 1996. The word nifty is derived from a combination of two different word National and Fifty as it comprises of 50 actively traded stocks from 12 different sectors of the Indian economy.
It is owned and managed by IISL or India Index Services and Products- a wholly owned subsidiary of the NSE Strategic Investment Corporation Ltd. Nifty is also known as Nifty 50 or CNX Nifty.
Its ecosystem comprises of exchange-traded funds (both onshore and offshore), exchange traded options at the NSE in India, and futures and options abroad at the SGX. The Nifty 50 is a free float market capitalization weighted index.
How is Nifty Calculated?
The base year taken for calculating nifty is 1995 and the base value set is 1000. It is calculated using a free float market capitalization weighted method. The level of index reflects the total market value of the stocks in relation to a particular base period.
The index is calculated daily on real-time basis as the value of the scrip changes daily.
The formulas used for calculation are:
Market Capitalization is the product of equity capital and the price of it
Hence market capitalization = equity capital*price
Free Float Market Capitalization is calculated on the basis of the number of shares available for public trading on the stock exchange and not on the number of outstanding shares. Hence, free float market capitalization = equity capital*price*Investible Weight Factor
Index Value= is the ratio that describes the change in the nominal value with relation to the value in the base year. Hence, index value= Current Market Value/Base Market Capital*Base Index Value (1000)
How are the Companies Selected?
Certain parameters and eligibility criteria are kept in mind and are required to be satisfied by the companies so as to be a part of the Nifty50. The criteria set are:
- Liquidity of the stocks. This means that the stocks should have been traded at an average cost of 0.50% or less during the last 6 months.
- The float adjusted market capitalization of the companies should be twice of the current smallest index constituent.
- The company should trade at NSE and be an Indian domicile.