How is Nifty 50 Calculated – NSE Benchmark Index!! |

By Trader Pit

July 4, 2021


I have never been a trader, but if you are, you must be aware of the NSE benchmark index, also known as Nifty 50. This index is an index of the top 50 companies from the National Stock Exchange of India Ltd (NSE), so the companies included in it are the most valuable companies from the Indian economy. The base of the index is the closing prices of these companies as on last Friday, and the index is computed by adding the percentage value of these stocks on the previous Friday and dividing the result by 100. **Disclaimer – Trading is a dangerous game, and I don’t encourage anyone to do it without proper training.

This section has been created to explain NSE Benchmark Index (Nifty 50 Index), a widely followed benchmark index of the National Stock Exchange of India Limited (NSE). The Nifty 50 Index is an index of the 50 stocks having highest market capitalisation on NSE. The NSE Benchmark Index is a key indicator of the performance of the NSE and is considered to be a good barometer of the aggregate market performance.

The Nifty 50 index is a stock market index that is used to describe a group of 50 large-cap stocks. The index has been developed over the last few decades to serve as a benchmark for the performance of the Indian equity market. Fundamentally, most Nifty 50 stocks are publicly traded. However, there are a few non-publicly traded constituents that are incorporated into the index. Accordingly, the constituents in the Nifty 50 index are selected to provide broad-based and diversified exposure across sectors, industries, and geographies.

Understand how the Nifty 50 is calculated: The Nifty reached a new high of 14,000 points at the beginning of the new year 2021. This is a good sign for Indian markets, which continue their upward trend. But have you ever wondered how the value of the index is determined?

Today we discuss the calculation of one of the most important indices in the Indian markets, the Nifty 50. Here we will discuss how the Nifty 50 is calculated and we will also look at the components of the Nifty50. Let’s get started.

What is Nifty 50?

An index is essentially a stock market that puts together a portfolio of the best stocks it owns. Indices have always played an important role for investors and companies because they provide a reliable measure. Investors can use it to compare the performance of the index and their portfolio, and managers can use it to evaluate the performance of their company’s stocks.

Indexes have also been used as an investment strategy, with investment managers simply constructing their fund portfolios to track the index in order to achieve market-based returns. Indexes play an important role because they also reflect the market and the economy of a country.

Nifty is derived from the words National (National Stock Exchange) and Fifty. The index was created in 1992 and began trading in 1994. It is owned and operated by India Index Service and Products (IISL). The Nifty 50 is a broad market index that serves as an indicator of market movements.

As the Nifty 50 consists of the largest Indian companies, it covers 65% of the market capitalisation of the NSE, adjusted for equity exposure. It is therefore considered to be an accurate reflection of the Indian equity markets.

READ ALSO

What are the Nifty and the Sensex? Principles of the stock market (for beginners)

How is the Nifty 50 calculated?

The Nifty 50 Index is calculated using the free float method and the market capitalization method. This method reflects the total market value of the 50 stocks in the index during the base period. The base period for the Nifty 50 starts with the 3rd quarter. November 1995.

In a first step, the Mcap of all companies is calculated. It represents the total value of all the shares of a company held by investors in the market.

Market capitalisation = (Outstanding shares) x (Current price)

The second step is to multiply Mcap by an investment weighting factor (IWF). Investment weighting is a coefficient used to determine which stocks are available for trading. Only shares that are publicly traded are taken into account. Shares held by the company’s founders, public authorities, shares transferred to employees, etc. are excluded.

Free float market capitalisation = (market capitalisation) x (invested weight factor (IMF))

Step three. Here, the market capitalization of the free float is multiplied by the weight assigned to the individual share.

The calculation for a single share would therefore be as follows

Free float weighted market capital = (market capital) x (IMF) x (weight)

 

Short note
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Fourth step. Now we divide the current market value by the 1995 base value to get the index value. The current market value is the total sum of the weighted market capitalizations of all freely traded shares. The market’s benchmark capital dates back to 1995 and is Rs. 2.06 trillion.

Index value = (current market value/market cap) * 1000

Familiarity with Nifty 50Actions

 

  Name Industry Weight
1. Reliance Industries Ltd. Energy – Oil and Gas 10.77%
2. HDFC Bank Ltd. Bank 10.66%
3. Infosys Ltd. Information Technology 7.42%
4. Housing Development Finance Corporation Ltd. Financial Services 7.29%
5. ICICI Bank Ltd. Bank 6.59%
6. Tata Consultancy Services Ltd. Information Technology 4.86%
7. Kotak Mahindra Bank Ltd. Bank 4.16%
8. Hindustan Unilever Ltd. Consumer Goods 3.04%
9. AXIS Bank Ltd. Bank 2.87%
10 ITC Ltd. Consumer Goods 2.84%
11. Larsen & Toubro Ltd. Construction 2.78%
12. State Bank of India Bank 2.39%
13. Bajaj Finance Ltd. Financial Services 2.23%
14. Bharti Airtel Ltd. Telecommunications 2.13%
15. Asian Paints Ltd. Consumer Goods 1.64%
16. HCL Technologies Ltd. Information Technology 1.58%
17. Maruti Suzuki India Ltd. Automotive industry 1.46%
18. Mahindra & Mahindra Ltd. Automotive industry 1.23%
19. UltraTech Cement Ltd. Cement 1.13%
20. Sun Pharmaceutical Industries Ltd. Pharmaceutical products 1.03%
21. Wipro Ltd. Information Technology 0.97%
22. IndusInd Bank Ltd. Bank 0.96%
23. Titan Company Ltd. Consumer Goods 0.94%
24 Bajaj Finserv Ltd. Financial Services 0.93%
25. Nestlé India Ltd. Consumer Goods 0.92%
26. Tata Motors Ltd. Automotive industry 0.92%
27. Tech Mahindra Ltd. Information Technology 0.91%
28. HDFC Life Insurance Co Ltd. Insurance 0.88%
29. Power Grid Corporation of India Ltd. Energy – Energy 0.88%
30. Dr. Reddy’s Laboratories Ltd. Pharmaceutical products 0.86%
31. Tata Steel Ltd. Metal 0.86%
32. NTPC Ltd. Energy – Energy 0.83%
33. Bajaj Auto Ltd. Automotive industry 0.79%
34. Adani Port and Special Economic Zone Infrastructure 0.79%
35. Hindalco Industries Ltd. Metal 0.79%
36. Grasim Industries Ltd. Cement 0.74%
37. Divi’s Laboratories Ltd. Pharmaceutical products 0.68%
38. Hero MotoCorp Ltd. Automotive industry 0.67%
39. Oil & Natural Gas Corporation Ltd. Energy – Oil and Gas 0.65%
40. Cipla Ltd. Pharmaceutical products 0.64%
41. Britannia Industries Ltd. Consumer Goods 0.63%
42. JSW Steel Ltd. Metal 0.61%
43. Bharat Petroleum Corp Ltd. Energy – Oil and Gas 0.58%
44. Eicher Motors Ltd. Automotive industry 0.56%
45. Sri Cement Ltd. Cement 0.56%
46. SBI Life Insurance Co. Insurance 0.54%
47. Coal India Ltd. Energy and mining industry 0.51%
48. UPL Ltd. Chemical Products 0.49%
49. GAIL (India) Ltd. Energy – Oil and Gas 0.42%
50. Indian Oil Corporation Ltd. Energy – Oil and Gas 0.40%

READ ALSO

Nifty 50 Companies – List of Nifty50 stocks by weight [2020].

Final thoughts

The value of the index changes in real time as the stock price changes. Over time, old companies that do not perform well are replaced by new companies that do meet the requirements of the index. The above calculation is limited to the Nifty. Other indices, such as the Sensex, use different base periods and base values and are calculated differently.

Aron, who holds a Bachelor of Commerce degree from Mangalore University, came into the world of equity research to explore his interest in financial markets. Outside of work he watches soaps, encourages the RCBs and dreams of going to Kasol as soon as possible. He also believes that eating ice cream with kids is the best way to teach them about taxes.Nifty 50 is the benchmark index used in the process of calculating indices like Nifty 100 and Nifty 200. Nifty 50 is calculated using a simple formula: Nifty 50 = Nifty 50 (i.e. Index of the Nifty 50 of last 15 years). The Index of Nifty 50 is calculated every 1st and 15th day of the month.. Read more about nifty calculation in excel and let us know what you think.

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About the author

Trader Pit

A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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