12 Mins

What is Meant by Nifty?

The Nifty meaning is a derivation from the mix of two words, i.e. “National Stock Exchange” and “fifty”. It is an abbreviation of the National Stock Exchange Fifty. It is a collection of top performing 50 equity stocks that are actively trading in the index. However, 51 stocks are currently trading on Nifty. Hence, Nifty is also known as Nifty50 or CNX Nifty.

Nifty is a popular stock index. The National Stock Exchange of India introduced it. This index was founded in 1992 and started trading in 1994. It is owned and managed by India Index Service & Products Limited (IISL). IISL is an Indian specialized company which focuses on an index as its focus product. It has a variety of financial products like index funds, index futures and options, stock futures and options, etc.

What is an Index?

A stock index is a measurement of the changes that take place in the stock market. It measures price movement and market performance. For creating an index, one has to group some stocks from the list of stocks with similar characteristics. This grouping of stocks can be on the type of industry, total market capitalization or the size of the company. 

To calculate the value of the stock market index, one can use the values of the underlying group of stocks. Any change in the value of underlying stock also leads to a change in the stock index value. If the price of most of the stocks rises, the index will again rise and vice-versa. 

Thus, an index is indicative of changes in the market. It reflects the overall market investing sentiment and price movements. Investors and financial managers use this to measure the value of portfolio holding. They can also use it for comparing the performance with the benchmark index. 

Some of the standard indices in India are 
  • Benchmark indices like NSE Nifty and BSE Sensex
  • A broad-based index like Nifty 50, BSE 100, Nifty Next 50, etc.
  • Market capitalization indices like BSE Smallcap, BSE Mid Cap, Nifty Small cap, Nifty Mid Cap, etc.
  • Sectoral indices like the Nifty FMCG index, Nifty Bank index, Nifty IT, Nifty Auto, etc.

Nifty 50 covers the following sectors of the Indian economy.

It follows the patterns and trends of blue-chip companies. These are the largest companies with high liquidity in India. Nifty also contains several sub-indices based on separate asset classes, sectors, or segments. They are NIFTY IT, NIFTY Next 50, NIFTY Bank, NIFTY Small Cap, and many more. Also, Nifty has 1600 companies listed in it.

NIFTY 50 is a benchmark index by NSE. It is one of the two national indices and a broad-based index of the National Stock Exchange NSE. Also, NSE is a leading stock exchange in India. It is the largest trading platform in India. Another national index is Sensex which is a product of the Bombay Stock Exchange BSE. 

AutomotiveEngineeringMetals & Mining
Banking/FinanceFood & BeverageOil & Gas
Cement/ConstructionTechnologyPharmaceuticals
ChemicalsManufacturingRetail/Real Estate
Consumer durables & non-durablesMediaTelecom

Which companies are a part of Nifty? 

For the latest stock performance, the Nifty index reconstitution happens every six months. It checks the 6-month performance of the stocks. It also checks if the companies fulfill the eligibility criteria. Following these criteria, it eliminates or adds stocks in the stock list, respectively. In case of any elimination or addition, the respective company is given a notice four weeks prior to reconstitution.

The NSE indices have an excellent team of professionals that manage the Nifty index. It is an advisory committee that offers guidance and expertise on issues that relate to equity indices.

The following is the eligibility criteria for companies for Nifty Index listing – 

  • The company must be registered with the National Stock Exchange. It must be an Indian company. 
  • The company’s stock must be highly liquid. The liquidity is measurable by the average impact cost. Impact cost is the trading price of single security in relation to the index’s weight to the company’s market capitalization. For six months, the company’s impact cost should be less than or equal to 0.50%. Otherwise, it should be lower with 90% of the observations made on a portfolio of Rs.10 crores. 
  • For the last six months, the company’s trading frequency should be 100%
  • The company should have a free-floating average market capitalization. This should be 1.5 times greater than the smallest company on the index.
  • Shares of the companies that have DVR or Differential Voting Rights can also be eligible for the Nifty 50 Index.

Apart from the periodical routine, the index also goes through a reconstitution when the company undergoes certain events—for instance, company events like spin-offs, mergers or acquisitions, suspensions or compulsory delisting. Additionally, Nifty conducts quarterly screening of the companies to keep track of whether they are adhering to regulations.

The companies must also adhere to specific mandates given by the Securities and Exchange Board of India (SEBI). Otherwise, the companies may be delisted from the indices. 

How is Nifty calculated?

Nifty 50 indices calculation uses the float-adjusted and market capitalization method. Here, the level index demonstrates the aggregate market value of the stocks present in it for a specific duration. This particular base duration for the Nifty index is 3rd November 1995. The base value of stocks is 1000, and the base capital is Rs.2.06 trillion

The formula for calculating the index value is as follows – 

Market capitalization = Price * Equity Capital

Free Float Market Capitalization = Price * Equity Capital * Investable Weight Factor

Index value = Current market value / (1000 * Base market capital)

Investable Weight Factor (IWF) is a factor to determine the number of shares available for trading. The index calculation is on a real-time basis as the value of stock also changes daily. 

The formula calculates not only the value but also the changes in the corporate procedures. For instance, changes in corporate can be stock splits, rights issues, and many more. Nifty share market is a benchmark for measurement against all equity shares markets in India. It regularly conducts index maintenance checks. Therefore, this ensures that it is stable and working effectively. This can persist as a benchmark index of the Indian stock market. 

How is Nifty different from Sensex? 

Nifty and Sensex both are Indian stock market indices which depict the strength of the securities markets. Despite their similarity to the broad-based index, there is a difference between Sensex and Nifty.

Full-Form

  • The nifty derivation is from the word National Fifty. It is also known as S&P CNX Nifty
  • Sensex derivation is from the phrase Sensitive Index. It is also known as the S&P BSE Index.

Date of Commencement

  • NSE Nifty incorporation year is 1992. However, it commencement of its operations was in November 1994. 
  • BSE Sensex incorporation year is 1986. 

Operations

  • Index and Services and Products Limited (IISL), an NSE India subsidiary owns and operates Nifty.
  • The Bombay Stock Exchange (BSE) owns Sensex. BSE is also the largest trading platform in India. 

Location

  • Nifty is based on NSE. Its corporate office location is Exchange Plaza, Bandra Kurla Complex, Mumbai
  • Sensex is based on BSE. The corporate office location is at Dalal Street, Mumbai. 

Base Period

  • Nifty’s base period is 3rd November 1992
  • Sensex base period is 1978-1979

Base value

  • The nifty base value is 1000
  • Sensex base value is 100

Base Capital

  • Nifty base capital is Rs.2.06 trillion
  • Sensex does not have a base capital

Number of constituents

  • Nifty comprises the top 50 stocks traded on NSE
  • Sensex comprises the top 30 stocks traded on BSE.

Number of sectors

  • Nifty is a broad market index which covers companies across 24 sectors
  • Sensex covers companies across 13 sectors.

Companies

  • Nifty has 1600 companies listed
  • Sensex has 5000 companies listed.

As such, there is no significant difference between Sensex and Nifty. They both target the large cap stocks. Nifty is broader than Sensex as it has more number of large cap stocks listed. Also, Nifty has a more diversified portfolio in comparison to Sensex. One can even notice more trading happening on the NSE India platform.

What are the benefits of investing in the Nifty 50 Index?

There are different ways of investing in Nifty 50. A few of them are index funds, Nifty futures and options, and ETFs. One cannot directly invest in the index; instead, they have to buy all the 50 shares in the same proportion or invest in index funds and ETFs. Following are the benefits of investing in Nifty based index funds and ETFs:

  • Good returns in the long run: Nifty 50 was launched in 1996 with a base value of 1000. It reached the 15000 mark in 2021. Hence investing in index-based funds will provide good returns in the long run.
  • No bias by the fund manager: The index fund’s portfolio depends on the index directly, and the fund manager doesn’t have control over it. Hence it is free from fund manager bias.
  • Lower expense ratio: Index funds have a lower expense ratio when compared to other types of mutual funds. Since they are passive funds, the fund manager’s role is minimal, and hence the fund management fees are also low.
  • Market returns: The index funds offer market returns as they are a replica of the index. Their performance is directly dependent on the movement of the index. Hence it is easier to track investments.

Nifty 50 Index Companies (as of September 2020)

  • Tata Motors Limited
  • Hindalco Industries Ltd.
  • Larsen & Toubro Ltd.
  • Titan Company Ltd.
  • Bharti Infratel Ltd.
  • Adani Ports and Special Economic Zone Ltd.
  • Hero MotoCorp Ltd.
  • HCL Technologies Ltd.
  • Ultratech Cement Ltd.
  • Indian Oil Corporation Ltd.
  • Grasim Industries Ltd.
  • Tech Mahindra Ltd.
  • JSW Steel Ltd.
  • Oil & Natural Gas Corporation Ltd.
  • Zee Entertainment Enterprises Ltd.
  • UPL Ltd.
  • Power Grid Corporation Of India Ltd.
  • Asian Paints Ltd.
  • ICICI Bank Ltd.
  • Wipro Ltd.
  • Hindustan Unilever Ltd.
  • Coal India Ltd.
  • Kotak Mahindra Bank Ltd.
  • Bajaj Finance Ltd.
  • Maruti Suzuki India Ltd.
  • Tata Consultancy Services Ltd.
  • Britannia Industries Ltd.
  • Bharat Petroleum Corporation Ltd.
  • Bajaj Finserv Ltd.
  • Cipla Ltd.
  • Reliance Industries Ltd.
  • Bajaj Auto Ltd.
  • Dr Reddys Laboratories Ltd.
  • Tata Steel Ltd.
  • IndusInd Bank Ltd.
  • Nestle India Ltd.
  • Infosys Ltd.
  • HDFC Bank Ltd.
  • Shree Cement Ltd.
  • Mahindra & Mahindra Ltd.
  • Housing Development Finance Corporation Ltd.
  • GAIL (India) Ltd.
  • Axis Bank Ltd.
  • State Bank Of India
  • ITC Ltd.
  • HDFC Life Insurance Co Ltd.
  • NTPC Ltd.
  • Eicher Motors Ltd.
  • Sun Pharmaceutical Industries Ltd.
  • Bharti Airtel Ltd.

Major Milestones of NIFTY?

Following are the major milestones of Nifty 50

  • 1993: NSE was recognized as a stock exchange.
  • 1996: The Nifty 50 index was launched with a base value of 1000. It is the flagship index of NSE.
  • 2000: Nifty touched 1800 due to IT-boom.
  • 2006: A service sector boom led to Nifty reaching 3000.
  • 2007: Nifty grew to 5000
  • 2014: After NDA has formed government at the centre, the nifty has touched 7,000.
  • 2017: Strong FII participation led to an increase in Nifty to 9,000.
  • 2017: GST rollout, good monsoon, and strong corporate earnings increased Nifty to 10,000.
  • 2018: Nifty touched the 11,000 mark due to a fall in crude oil prices and a positive update from the World Bank on the Indian economy.
  • 2021: Nifty touched the 15,000 mark due to COVID 19 vaccine rollout.

Frequently Asked Questions

What are the equity Market timings?

Usually, the equity market timings are from 9:15 am to 03:30 pm, Monday to Friday. However, the commodity market is between 10:00 AM to 11:30 PM, Monday to Friday.

Who manages the Nifty 50 Index?

Nifty 50 is the flagship index of the National Stock Exchange (NSE). It is managed by NSE Indices Ltd, a subsidiary of NSE. National Stock Exchanged is a leading exchange in India and ranks number 2 in the world due to the number of trades from January to December 2018. It is the first index to launch electronic or screen-based trading in India.
NSE Indices Limited, which is formerly known as IISL, is a subsidiary of NSE. Its core product is the index and offers various indexes and index-related services to capital markets. It not only owns and manages NIFTY 50 but the entire range of equity indices of NIFTY. For example, thematic indices, benchmark indices, sectoral indices, and strategy indices. The company also maintains fixed income indices based on government securities, money market securities, and corporate bonds

Who owns Nifty?

Nifty is a popular stock index introduced by the National Stock Exchange of India. The index is owned and managed by India Index Service & Products Limited (IISL). It was founded in 1992 while trading on Nifty was initiated in 1994. IISL is an Indian specialized company. It has an index as its focus product.

Which is better NSE or BSE?

NSE and BSE both are Indian stock market indices that depict the strength of the securities markets. They both target the large cap stocks. Nifty is broader than Sensex as it has more number of large cap stocks listed. Also, Nifty has a more diversified portfolio in comparison to Sensex. Therefore, NSE can be better for big investments considering the volume of trading while BSE can be more suitable for beginners.

Can I buy Nifty 50?

You cannot directly invest in the Nifty 50 index; instead, you can buy shares of all the 50 companies on the Index. You must buy the shares in the same proportion or invest in index funds and ETFs. There are a few other ways of investing in Nifty 50 such as index funds, Nifty futures and options, and ETFs.

What is Bank Nifty India?

Bank Nifty is an index representing the highest and most liquid 12 stocks from the banking sector that are trading on the National Stock Exchange. It acts as a benchmark that captures the capital market performance of Indian banking sector.

Can I buy on NSE and sell on BSE?

Yes, you can buy on NSE and sell those shares at any exchange as long as they are in your DEMAT account. You can only do so if you are an investor or a positional trader. However, if you’re an intraday or BTST trader, you must sell your shares at the same exchange where you purchased them from.

Is Nifty 50 a good investment?

There are different ways of investing in Nifty 50 and its main benefits are good returns from long-term investments. You can invest in index funds, Nifty futures and options, and ETFs. Though you cannot directly invest in the index instead you can buy all the 50 shares in the same proportion. You can enjoy a lower expense ratio and better market returns.