What is NIFTY?
NIFTY, short for National Stock Exchange Fifty, is a major benchmark index introduced by the National Stock Exchange (NSE) of India on April 21, 1996. It represents the top 50 large-cap companies listed on the NSE, selected from a pool of over 1600 stocks. These companies span across 12 key sectors of the Indian economy, making the NIFTY 50 a well-diversified and reliable indicator of the stock market’s overall health. It is one of India’s two main stock market indices, the other being SENSEX, which is managed by the Bombay Stock Exchange (BSE). NIFTY is maintained by India Index Services & Products Ltd. (IISL), a wholly owned subsidiary of NSE Strategic Investment Corporation Ltd.
Key Features of NIFTY:
- NIFTY 50 includes stocks from sectors like:
- Information Technology
- Financial Services
- FMCG (Consumer Goods)
- Automobiles
- Energy
- Media & Entertainment
- Metals
- Cement
- Telecommunications
- Pharmaceuticals
- Fertilizers and Pesticides
- Other industrial and service sectors
- The index primarily tracks blue-chip companies, known for high liquidity and strong fundamentals.
- NIFTY serves as a benchmark for equity funds and is widely used in derivative trading via Futures and Options (F&O).
Different NIFTY Indices:
In addition to the NIFTY 50, NSE offers several sector-specific and broader market indices, such as:
- NIFTY IT
- NIFTY Bank
- NIFTY Next 50
- NIFTY Midcap, Smallcap, and more
Eligibility Criteria for Inclusion in NIFTY:
To be included in the NIFTY 50 index, a company must meet specific criteria:
- Indian Domicile: The company must be incorporated and listed on NSE in India.
- Liquidity: The stock must have an average impact cost of ≤ 0.50% for 90% of trading sessions over the last 6 months, based on a portfolio worth ₹10 crores.
- Trading Frequency: Must have traded on 100% of trading days during the last six months.
- Market Capitalisation: Its free-float market cap should be at least 1.5 times higher than the smallest stock in the index.
- DVR Eligibility: Shares with Differential Voting Rights (DVRs) can also be considered.
Index Rebalancing:
- NIFTY is reconstituted semi-annually to reflect the performance and compliance of listed companies.
- A notice period of four weeks is given for any inclusion or exclusion.
- Apart from routine rebalancing, adjustments can also occur due to:
- Mergers
- Spin-offs
- Compulsory delisting
- Suspension from trading
Additionally, NIFTY undergoes quarterly screenings to ensure adherence to SEBI’s portfolio concentration norms for Index Funds and ETFs (as per guidelines issued on 10 January 2019).
How is the NIFTY Index Calculated?
NIFTY is calculated using the float-adjusted market capitalisation-weighted method, which takes into account only the freely traded shares of a company.
Calculation Formula:
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Index Value = (Current Market Value) / (Base Market Capital) × 1000
- The base date: November 3, 1995
- Base Index Value: 1000
- Base Market Capital: ₹2.06 trillion
Corporate Actions:
Events like stock splits, rights issues, and bonus issues are factored into the index computation to ensure accuracy and consistency.
Major Milestones in NIFTY's Journey:
1996–2000
- Launch of dematerialised securities trading on NSE.
- Introduction of NIFTY 50 Index Futures.
- NIFTY futures listed on the Singapore Exchange.
- Began internet-based trading.
2001–2010
- Introduction of NIFTY Options.
- Launch of Single Stock Futures and Options.
- ETFs and Bank NIFTY Derivatives launched.
2010–2020
- Initiated global index F&O trading (Dow Jones, S&P 500).
- NIFTY 50 trading began on Osaka Exchange and TAIFEX.
- FTSE 100 index contracts were added
Notable NIFTY Highs and Related Events:
Notable NIFTY Lows and Contributing Factors:
NIFTY vs SENSEX:
- NIFTY: Broader index (50 stocks across 12 sectors), based on NSE.
- SENSEX: Includes 30 stocks, based on BSE.
- Mutual Funds and other financial instruments often use these indices as benchmarks to compare performance.
Final Thoughts:
NIFTY plays a critical role in India’s stock market landscape. As a benchmark index, it reflects the overall economic sentiment, guides investment strategies, and supports derivative trading. Investors, analysts, and fund managers widely use NIFTY to measure market performance and compare portfolio returns.
Disclaimer: This article is for educational purposes only and reflects the author’s personal views. It is not intended as financial or investment advice. Always consult with a qualified financial advisor before making investment decisions.
