NIFTY 50 is a benchmark stock market index in India. It represents the average of the 50 largest Indian companies listed on the National Stock Exchange (NSE). NIFTY 50 index was launched in 1996.
The 50 different companies which make up the NIFTY 50 index are from 13 different sectors. The NIFTY 50 index is calculated using the float adjusted, market capitalization weighted methodology. It reflects market value of all stocks in the index relative to a base period value.
How is NIFTY 50 index calculated?
Let us understand the calculation with an example. Stocks X,Y and Z form the NIFTY 50 index. The below information is available for the stocks.
| Stock | Market Cap (current) | Float factor | Free float market cap (current) | Weight | Weighted free float market cap (Current) |
| X | 200,000 | 0.8 | 160,000 | 0.40 | 64,000 |
| Y | 250,000 | 0.9 | 225,000 | 0.47 | 105,750 |
| Z | 300,000 | 0.7 | 210,000 | 0.30 | 63,000 |
| Current Market Value | 232,750 |
Base period details for the same stocks are in the table below.
| Stock | Market Cap (base period) | Float factor | Free float market cap (base) | Weight | Weighted free float market cap (base) |
| X | 100,000 | 0.95 | 95,000 | 0.40 | 38,000 |
| Y | 120,000 | 0.75 | 90,000 | 0.43 | 38,700 |
| Z | 200,000 | 0.80 | 160,000 | 0.17 | 27,200 |
| Base Market Value | 103,900 |
Index Value = (Current Market Value/Base Market Value) * 1000
So in our above example, index value = (232,750/103,900) * 1000 = 2,240
How is a scrip chosen for Nifty 50 index?
NSE ranks companies based on free float market capitalization. The top 50 companies are then chosen to be a part of NIFTY 50. The selection criteria is mentioned below.
- The stock 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 basket size of Rs. 2 Crores.
- Stock should have a listing history of at least 6 months.
- The stock must be traded in F&O segment.
- Companies who come out with an IPO will be eligible for inclusion if they fulfill the normal eligibility criteria for 3 months instead of 6 months.
The list of stocks is reviewed every 6 months. Those companies which do not meet the criteria are eliminated from NIFTY 50.
The NIFTY 50 is the flagship index of the National Stock Exchange. It consists of top 50 large cap companies of India. It covers 13 sectors of the Indian economy: financial services, information technology, consumer goods, oil and gas, automobiles, telecommunications, construction, pharmaceuticals, metals, power, cement and cement products, fertilizers and pesticides, and media and entertainment.
Why invest in NIFTY 50 stocks?
NIFTY 50 stocks have a potential for good returns. These are blue chip stocks so they are less volatile. These are best investments to build long term portfolios as the returns compound over a period of time. Investors can also invest through index mutual funds via systematic investment plans (SIPs) in NIFTY 50 stocks.
