Understanding Nifty And Should You Invest in Nifty.



NIFTY is a market index offered by the National Stock Exchange (NSE). It is a compound term for the National Stock Exchange and fifty which was introduced by the NSE on 21 April 1996. The NIFTY 50 is a benchmark-based index and also the flagship of the NSE, which shows the shares of 50 top companies out of a total of 1600 stocks. 


What Is Nifty Actually.


Nifty stocks comprise 12 sectors of the Indian economy - information , financial services, consumer goods, entertainment and media, financial services, metals, pharmaceuticals, telecommunications, cement and its products, automobiles, pesticides and fertilizers, energy, and other services.

Nifty is one of the two national indices, the other being SENSEX, a product of the Bombay Stock Exchange. It is owned by India Index Services and Products (IISL), a wholly owned subsidiary of National Stock Exchange Strategic Investment Corporation Limited.

NIFTY 50 follows the trends and patterns of bluchip companies, i.e. the most liquid and largest Indian securities. 

Nifty is a host of indexes - NIFTY 50, NIFTY IT, NIFTY Bank and NIFTY Next 50; And is a part of the futures and options (F&O) segment of the NSE that deals in derivatives.

Here is a list of Nifty 50


Their are some guidelines that the companies must have to be in Nifty 50 :


Eligibilty Criteria.

To be in listed in Nifty, the company should have the following :

Domicile

The company must be domiciled in India and traded (listed & traded and not listed but permitted to trade) at the National Stock Exchange (NSE).


Eligible Securities

Constituents of NIFTY 100 index that are available for trading in NSE’s Futures & Options segment are eligible for inclusion in the NIFTY 50 index.  
 


Differential Voting Rights:   

Equity securities with Differential Voting Rights (DVR) are eligible for inclusion in the index subject to fulfilment of criteria given below: 

Differential Voting Rights:   

  • Market capitalisation criteria is measured at a company level by aggregating the market capitalisation of individual class of security meeting the liquidity criteria for the respective index.
  • Free float of DVR equity class share should be at least 10% of free-float market capitalization of the company (voting equity class share and DVR equity class share) and 100% free-float market capitalization of last security in respective index.
  • It should meet liquidity criteria applicable for the respective index 
  • Upon inclusion of DVRs in index, the index may not have fixed number of securities.  For example, if DVR of an existing NIFTY 50 constituent is included in NIFTY 50, the NIFTY index will have 51 securities but continue to have 50 companies.
  • It is possible that the DVR is eligible for inclusion in the index whereas the full voting rights security class is ineligible. In such scenario, the DVRs shall be included in the index irrespective of whether full voting rights share class is part of index.


Liquidity

For inclusion in the index, the security should have traded at an average impact cost of 0.50 % or less during the last six months for 90% of the observations for a portfolio of Rs. 10 crores. 
 
Impact cost is the cost of executing a transaction in a security in proportion to its index weight, measured by market capitalization at any point in time. This is the percentage mark-up suffered while buying/selling the desired quantity of a security compared to its ideal price -- (best buy + best sell)/2. 

Float-Adjusted Market Capitalization

Companies will be eligible for inclusion in NIFTY 50 index provided the average free-float market capitalisation is at least 1.5 times the average free-float market capitalization of the smallest constituent in the index. 

Listing History

A company which comes out with an IPO is eligible for inclusion in the index if it fulfills the normal eligibility criteria for the index - impact cost, float-adjusted market capitalization for a three-month period instead of a six-month period. 
 
At the time of index reconstitution, a company which has undergone a scheme of arrangement for corporate event such as spin-off, capital restructuring etc. would be considered eligible for inclusion in the index if as on the cut-off date for sourcing data of preceding six months for index reconstitution, a company has completed three calendar months of trading period after the stock has traded on ex. basis subject to fulfilment of all eligibility criteria for inclusion in the index. 

How does NIFTY is calculated in stock market?

The NIFTY share index is managed by a team of professionals at NSE Indices Limited. It formed an index advisory committee that provides its expertise and guidance on a wide range of issues for the equity index.

The NIFTY 50 index is calculated based on a float-adjusted and market capitalization weighted method. In this method, the level of the index represents the total market value of the shares in the index over a specific base period. The base period for the NIFTY 50 index is 3 November 1995 where the base value of the index is assumed to be 1000 and its base capital is Rs 2.06 trillion.

How Can You Buy NIFTY index.

Nifty 50 is an Index comprising of 50 stocks and can’t be bought. In order to buy the Index, you’ll have to buy the constituent 50 stocks in the same weightage as they hold on the Index.

You can buy it in the proportion of its weightage and it pay you on the basis of its proportion or weightage. 

These are the terms that uses to calculate and specify how Nifty is indexed. If you like this article comment down and tell what you want to learn next. 

And if you haven't checked What is Trading click here ShapeMeGood/What is Trading

 

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