Article

What is Nifty 50?

16 Apr 2019

Nifty is the short form for the NSE Fifty and as the name suggests it consists of the 50 most active and liquid stocks in the Indian markets. Unlike the Sensex which uses 1979 as the base year, the Nifty uses 1995 as the base year since the NSE itself came into existence only in 1994. The chart below captures the Nifty since inception.

What you must know about the Nifty 50

The Nifty is also a general index like Sensex, that tracks the market overall. It is also one of the most actively traded indexes in the futures and options segment and it is available for F&O trading in India and abroad. Nifty is also calculated using the free float methodology where the stocks are weighted based on the free float market capitalization of the stock. While the Nifty was launched on April 22, 1996, it uses November 03, 1995 as the base year with a base value of 1000. That means at the current Nifty value of 11,700 it indicates wealth creation to the tune of 11.70 times over the last 24 years. The index is rebalanced semi-annually and the Nifty values are available on a real time basis during trading hours. Apart from being traded on the NSE, the Nifty 50 futures are also traded on the SGX (Singapore Exchange).

Sectoral and Stock mix of the Nifty 50

There are over 13 key sectors represented in the Nifty but the most significant is the financial services sector which has a weightage of 38.85% in the Nifty. Other than financial sector, energy has a weightage of 15.30%, IT has a weight of 13.67%, consumer goods have a weight of 11.29% and autos have a weight of 6.08%. Put together, the top 5 sectors account for more than 85% of the overall weightage in the Nifty and have a substantial influence on the indices.

In terms of specific stocks the top 10 stocks in the Nifty by weight are as under:

Source: NSE

TCS, despite being the most valuable company in India in terms of market cap has a much lower weightage due to its limited free float. Since inception, the Nifty has given an annualized return of 11.04% excluding dividends. The returns would be closer to 12.6% if the annualized dividends were also added. The Nifty currently quotes at a P/E ratio of 29.01 on trailing earnings, a price to book ratio of 3.71 and has a dividend yield of 1.13. All these figures keep changing on a regular basis but they are useful parameters to determine if the market overall is overpriced or underpriced.

The Nifty represents nearly 67% of the free float market cap of the NSE and is therefore fairly representative. It is a very important tool for benchmarking portfolio performance, for index funds / ETFs and for index derivatives used in portfolio hedging.

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What is Nifty 50?

16 Apr 2019

Nifty is the short form for the NSE Fifty and as the name suggests it consists of the 50 most active and liquid stocks in the Indian markets. Unlike the Sensex which uses 1979 as the base year, the Nifty uses 1995 as the base year since the NSE itself came into existence only in 1994. The chart below captures the Nifty since inception.

What you must know about the Nifty 50

The Nifty is also a general index like Sensex, that tracks the market overall. It is also one of the most actively traded indexes in the futures and options segment and it is available for F&O trading in India and abroad. Nifty is also calculated using the free float methodology where the stocks are weighted based on the free float market capitalization of the stock. While the Nifty was launched on April 22, 1996, it uses November 03, 1995 as the base year with a base value of 1000. That means at the current Nifty value of 11,700 it indicates wealth creation to the tune of 11.70 times over the last 24 years. The index is rebalanced semi-annually and the Nifty values are available on a real time basis during trading hours. Apart from being traded on the NSE, the Nifty 50 futures are also traded on the SGX (Singapore Exchange).

Sectoral and Stock mix of the Nifty 50

There are over 13 key sectors represented in the Nifty but the most significant is the financial services sector which has a weightage of 38.85% in the Nifty. Other than financial sector, energy has a weightage of 15.30%, IT has a weight of 13.67%, consumer goods have a weight of 11.29% and autos have a weight of 6.08%. Put together, the top 5 sectors account for more than 85% of the overall weightage in the Nifty and have a substantial influence on the indices.

In terms of specific stocks the top 10 stocks in the Nifty by weight are as under:

Source: NSE

TCS, despite being the most valuable company in India in terms of market cap has a much lower weightage due to its limited free float. Since inception, the Nifty has given an annualized return of 11.04% excluding dividends. The returns would be closer to 12.6% if the annualized dividends were also added. The Nifty currently quotes at a P/E ratio of 29.01 on trailing earnings, a price to book ratio of 3.71 and has a dividend yield of 1.13. All these figures keep changing on a regular basis but they are useful parameters to determine if the market overall is overpriced or underpriced.

The Nifty represents nearly 67% of the free float market cap of the NSE and is therefore fairly representative. It is a very important tool for benchmarking portfolio performance, for index funds / ETFs and for index derivatives used in portfolio hedging.