What is Nifty and Sensex & How it’s Calculated?

What is Nifty and How It is Calculated (Nifty 50 Meaning): To understand the stock markets in a better way, it is important to know the meaning of Nifty and Sensex. One needs to understand how NSE and BSE work. NSE stands for National Stock Exchange. BSE stands for Bombay Stock Exchange. They both are the oldest stock exchanges in India. Furthermore, Sensex is the stock index introduced by the BSE. Similarly, nifty is the stock index that was introduced by the NSE.

Let us start by learning more about nifty and its related concepts like the Meaning of nifty 50, the full form of nifty, etc.

Meaning of Nifty

Nifty is basically a market index that was introduced by the National Stock Exchange.

The word Nifty is a mix of two words, i.e., National Stock Exchange and Fifty.

Nifty 50 is a benchmark-based index and is also a flagship of NSE, which showcases the top 50 equity stocks traded on the stock exchange out of a total of 1600 stocks.

The word “Nifty” was coined by the NSE on April 21^st, 1996.

The index was initially founded in 1992 and trading started in 1994.

The entire index is owned and managed by India Index Service & Products Limited (IISL).

The Nifty 50 largely follows the trends and patterns of the blue-chip companies, i.e., the most liquid as well as the largest in the Indian securities market.

The Nifty index comprises a host of indices like the Nifty 50, Nifty IT, Nifty Bank, and Nifty Next 50.

It is also a part of the Futures & Options (F & O) segment, which completely deals in derivatives.

What is an Index?

A stock index is simply a measurement of the changes that take place in the stock market.

This index helps in measuring price movement and market performance.

To calculate the value of the stock market index, one has to use the value of the underlying group of stocks.

Any change in the value of the underlying stock will lead to a change in the stock index value.

If the price of most of the stocks rises, then the index will also tend to rise and vice-versa.

Thus, the index is considered to be indicative of changes in the market.

Standard indices in India:

There are a few standard indices in India.

They are as below:

1. Benchmark indices like the NSE Nifty and the BSE Sensex.
2. Broad-based indexes like Nifty 50, BSE 100, Nifty Next 50, etc.
3. Sectorial indices like the Nifty FMCG index, Nifty IT, Nifty Bank Index, Nifty Auto, etc.
4. Other market capitalization indices like the BSE Small-Cap, BSE Mid Cap, Nifty Small Cap, Nifty Mid Cap, etc.

Eligibility criteria for the Nifty Index Listing:

Listing is not an easy task. We need to go through the entire pipeline of the process to get listed.

The eligibility criteria for getting listed on the Nifty Index are as below:

1. The company should be mandatorily registered with the National Stock Exchange. The company has to be an Indian company.
2. The company’s stock should be highly liquid. This liquidity is measured by the average impact cost. An impact cost is nothing but the trading price of a particular security in relation to the index weighting of the company’s market capitalization.
3. The company’s trading frequency should be at least 100% for the last six months.
4. The company is supposed to have a free-floating average market capitalization. This should be 1.5 times greater than the smallest company in the index.
5. Shares of the company that has Differential Voting Rights (DVR) are also eligible for the Nifty 50 Index.

Sectors covered by the Nifty 50:

The entire Nifty 50 consists of several sectors.

The following are the various sectors of the Indian economy that are covered under Nifty 50:

Which companies are part of Nifty?

The Nifty Index reconstitution happens every 6 months.

It checks the 6-month performance of the stocks and also checks if the company fulfills the eligibility criteria.

The NSE indices have an excellent team of professionals that manage the entire Nifty Index.

The advisory committee offers guidance and expertise on the issues that relate to the equity indices.

Latest Nifty 50 Companies List (2022)

The entire list of the Nifty 50 is as below:

Must Learn: How to Trade in Nifty Intraday?

How is the Nifty calculated?

The Nifty 50 index calculation uses the float-adjusted and market capitalization methods.

In this method, the level of the index will demonstrate the aggregate market value of the stocks present in the index in a specific base period.

Such a base period for the Nifty 50 is November 3rd, 1995, where the base value of the index is considered as 1000 and its base capital as RS. 2.06 trillion.

The formula for calculating the Nifty price index is:

Index Value= Current MV or Market Value / (Base Market Capital * 1000).

Market Capitalisation = Price * Equity Capital

Free Float Market Capitalisation = Price * Equity Capital * Investable Weight Factor.

The above is not the only measure to calculate the value because there are other changes that are taken into consideration, like changes in corporate procedures like stock splits, the right insurance, and much more.

The Nifty is set as a benchmark for measurement against all the equity share markets in India.

What distinguishes the Nifty from the Sensex?

Both are the Indian stock market indices, which help in depicting the strength of the securities market.

There are a few differences between the two, as below:

Must Know: How can I Learn to Trade in Nifty?

Benefits of investing in the Nifty 50 Index:

Investing itself is beneficial.

The following are the main benefits of investing in the Nifty 50 Index:

#1.) Good returns in the long run:

When launched in 1996, its base value was 1000. It reached the mark of 15,000 in 2021 and is still growing. Hence, investing here will fetch you good returns.

#2.) No bias by the fund manager:

The portfolio depends directly on the index, and the fund managers don’t have any control over it. Thus, this index is free from any fund manager bias.

#3.) Market returns:

The performance is directly dependent on the movement of the index. Thus, it is quite easy to track investments.

#4.) Lower expense ratio:

They have a very low expense ratio when compared to other mutual funds. Since these are passive funds with minimal involvement of the fund manager, the fund management fees are also low.

Milestones achieved by Nifty:

As the index has been in operation for more than 20 years, it has achieved many milestones.

The following are the major milestones achieved by Nifty 50:

Read More About: Sensex 30 Companies list 2022

Meaning of Sensex

Sensex is one of the main stock market indices in India. It was introduced by the Bombay Stock Exchange i.e. BSE on 1st January 1986. The main reason why Sensex came into existence was to know the market sentiments in relation to different sectors. The index comprises 30 stocks known as BSE 30. In addition, these 30 stocks are selected after they fulfill qualitative and quantitative criteria. Let us look at the list of 30 stocks under Sensex India.

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Conclusion:

The above index is popularly traded on a very large scale. We hope that the above details on the Nifty index help you to choose your stocks wisely.

Frequently Asked Questions (FAQs)

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