Nifty 50

What is Nifty 50?

Nifty 50 is a standard Indian stock market index, reflecting the weighted average of the top 50 largest Indian corporations among 1300 stocks listed on the National Stock Exchange. It is the benchmark index for the Indian equity market and the most actively traded index on the Futures and Options segment of NSE. This indicator is mainly managed by NSE Indices, a wholly-owned subsidiary of the NSE Strategic Investment Corporation Limited. The stock market's performance is tracked by evaluating the performance of these 50 stocks only. One can quickly acquaint itself with whether the market was up or down by monitoring the performance of this benchmark index.

History

The Nifty Fifty was the name for a group of US growth stocks that did very well in the 1960s and early 1970s.
Although it was never a recognised benchmark, it was a collection of 50 stocks named by market observers. It gained extra significance in 1996 when it debuted on the National Stock Exchange of India and turned into a mainstay of the Indian stock market.
This is the flagship index of NSE. It was originally launched as Standard & Poor's CNX Nifty. But once the NSE terminated its licence deal with Standard & Poor's, the benchmark's name was changed to CNX Nifty. The Credit Rating Information Services of India Limited (CRISIL) and the National Stock Exchange of India are collectively referred to as CNX.

Later, in November 2015, CNX Nifty was renamed Nifty 50.

During the height of the information technology boom in 2001, it reached 1,800. In the same year, the futures contract was added.

Why should we buy shares of these companies?

These stocks offer access to traders/ investors to varied sectors of the economy, helping them diversify their portfolios and gain from companies across the different sectors.
If you are a beginner, you can invest in India's top companies without researching a lot about the companies. All 50 companies listed on it are the companies whose research is conducted only by NSE's experts.
However, investing in companies without proper research is not advisable.

What are the eligibility criteria to become a part of this benchmark?

Companies with high profits, regularly increasing returns, robust financial statements, appropriate liquidity, and profitable financial ratios are considered best for qualifying for this benchmark index.

• It must be based in India and must be listed on the National Stock Exchange.

• The company must be traded in the segment of futures & options of NSE.

• The firm must be part of Nifty 100 first.

• Companies that provide Differential Voting Rights on equity are eligible

• The company's trading frequency must be 100% for the previous six months.

• The market capitalisation of the company must be 1.5 times of average free-float market capitalisation of the smallest constituent of the index.

What are the factors that affect the performance of these fifty stocks?

The performance of the benchmark is affected by a wide range of factors.
Here are some of the important factors:

Inflation

Inflation largely affects all the sectors and the demand for money, i.e. liquidity. With increased inflation rates in an economy, the profitability of the companies whose shares are being traded also varies. If inflation rates are high, the stock market generally tends to be lower, and profitability is also reduced.

Performance of the international markets
It would be mindless to say that world economies are separate. All economies are interlinked and interdependent. Thus any turbulence in one part of the world economy affects other economies also and it gets affected.

Recession or economic boom

The business cycle phases and their movements affect the liquidity preferences and people's spending capacity. This affects the overall system, so the scripts or stock prices also get to see a sudden dip or rise.

Changes in government budget

The budget affects the economy, which affects the companies operating in the same economy. When there is any significant push or withdrawal by the government, and it gets reflected in the government budget, the stock prices also get affected.

How are companies listed in this benchmark?

Listed on NSE:

These companies must be listed on the NSE. A company's stock should be tradeable in NSE futures and options.

Top 50 companies by market cap:

The top 50 NSE large-cap companies are ranked by free-float market capitalisation. Multiplying a company's stock price by the number of outstanding shares gives its market capitalisation.

High liquidity:

Liquidity is another important aspect. This means that these stocks must be easy to buy and sell and have a high trading volume.

Rebalancing:

The equity benchmark gets rebalanced every June and December. During rebalancing, it eliminates stocks with declining value or those suspended or delisted. The removed stocks are replaced with emerging stocks with higher value. Rebalancing increases the index's exposure to emerging stocks and sectors.

Advantages of Nifty 50

Here are some of the advantages of investing in these stocks:

Decent returns:

These companies are well-established companies and are considered leaders in their sectors. Investors can expect decent gains on their investments.

Low volatility compared to other stocks:

The stock prices of these stocks are comparatively less volatile than other companies. Moreover, during a market downturn, the share prices of these companies can recover from setbacks or shocks, adapt well to changes in the environment affecting it, and keep going in the face of adversity.

Well researched companies:

Experts and analysts research these companies regularly. Moreover, news about these stocks is widely covered by media platforms. So, it is easier for investors to get a holistic picture of the company.

How is this index calculated?

Earlier, it was calculated on the market capitalisation method. In 2009, the computation of the index was changed to the free-float market capitalisation methodology to make calculations easy and transparent.
In the free-float market capitalisation method, only those numbers of shares are taken into the calculation that is available for the trading to the public. It excludes the shareholdings of promoters, government, employee welfare fund, or any other corporate entity. Consequently, the formula of the free-float market capitalisation of a company would be-
Number of shares being traded by the publicmarket price per share
After identifying each company's free-float market capitalisation, we can find the overall index value.
The formula for finding out the value of the index would be:
=Current Market Value/Base Market CapitalBase Index Value
The base value is 1000. The company's market cap in 1995 serves as the base market capital.

Let's look at an example to help you better comprehend this. Let us assume for simplicity that the index only consists of two companies, A and B.

The total number of shares in Company A is 10,000, of which 2000 are held by the promoters, and the remaining 8000 are held by regular investors and are open to trading.

On the other hand, Company B has a total of 10,000 shares, 7000 of which are available for active traders, and the remaining 3000 are held by the promoters, governments, and corporate organisations.

The share prices of Companies A and B are Rs. 20 and Rs. 30, respectively. Let us consider the base value of these two companies as Rs.6,000.

Hence,
The free float market capitalization of A is 8,000 x 20=Rs.1,60,000
The free float market capitalization of B is 70,000*30=Rs.2,10,000
So, the total free float of the MCap of the two companies are Rs.3,70,000
The value will be=(3,70,000/6000)*1000=61,666.67

What are Nifty 50 futures?

It is a derivative contract, meaning its value is based on the underlying asset. The Nifty 50 index is the underlying asset for these futures. The futures contract's value rises with an increase in the index's value. The futures give the buyer or seller the legal right to trade the stocks that make up the benchmark at a predetermined price at a later date.

How can I invest in Nifty 50 Shares?

Buy individual shares:

Buy individual shares in proportion to the equity benchmark. This investment strategy needs a lot of capital. Retail investors may not have much investable capital. Moreover, managing 50 stocks can be time-consuming.

Trade in F&O:

Investors with little cash can participate in futures and options contracts. Few investors like F&O. Due to the high leverage in the F&O and the requirement that contracts be settled every last Thursday, investors may experience severe losses.

Investing passively:

Long-term investors who want less risk should invest in passive funds. These funds hold an identical stock portfolio to the index and come with many benefits.

Why should I buy Nifty 50 Shares from Upstox?

Upstox is a discount stock brokerage that combines a Trading Account and a Demat account. The Trading Account gives you access to stock exchanges like NSE, BSE, MCX etc. While Demat account is used to hold securities like stocks, mutual funds etc., electronically.

It is a registered member of SEBI, BSE, NSE, MCX, CDSL etc. and is regulated by stock broker regulations. It is also audited regularly by the exchanges, thus offering a fast, reliable and easy-to-use trading platform for traders in Indian stocks.

There is no restriction for using any payment mechanism. You can use net banking, UPI, GPay, NEFT/RTGS, cheque, etc., to transfer money to the Upstox trading account.
Even if you are a beginner, you can buy stocks through Upstox as the procedure is simple.
Upstox is one of India's top stock trading and investing apps offering online trading at a maximum of Rs.20 per order brokerage.

It does not have any account opening or annual account maintenance fees. So Upstox is like a free Demat account.