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What is Nifty 50? Know in Detail!

  • Mar 4, 2024

What is the Nifty 50?

If you've been wondering what is nifty 50, these are the biggest large capital stocks that have traded at a high value since the 1960s and 70s. It forms the benchmark of India's stock market index and represents the average of the top fifty entities listed on the National Stock Exchange.

This is owned by the National Stock Exchange Indices and is India's largest and most significant financial asset. It has a wide and interconnected ecosystem of ETFs or exchange-traded funds with prospects in the NSE and the Singapore Exchange Limited. Furthermore, it covers over 13 escorts within the Indian economy, and the investment managers gain exposure to the bulk of the Indian market in a single portfolio.

What comprises the Nifty 50?

The Nifty 50 consists of the top fifty businesses on the National Stock Exchange and represents their performance. These enterprises are picked based on their liquidity and market capitalization. They span sectors like finances, energy, consumer goods, health care, etc.

Some big names included are HDFC, Infosys, Hindustan Unilever, Cipla and more.

How did the Nifty 50 come to be?

This benchmark dates back to the 1960s and 1970s, with Nifty 50 meaning the New York Stock Exchange and its top 50 most popular and favoured large capital stocks, which were considered blue chip investments. A blue chip is any nationally acclaimed and recognized, financially well-established company that is publicly traded in the stock market. These are high-quality investments that promise good returns.

At the time, the nifty 50 blue chips included Xerox, Coca-Cola, IBM, etc., which were the quintessential picks for investors. In fact, at the time, these were called "one-decision" stocks that investors were encouraged to buy but never sell. The price-to-earnings or PE ratios of these blue chips were as high as 100 times the earnings, which was a major contributor to the bull market of the 70s before it crashed in the bear market of '73 and '74.

Eventually, in 1996, this index was expanded and introduced in the National Stock Exchange of India, and it has been a prominent fixture since.

What are the top companies in the Nifty 50?

Here are some of the top companies from various sectors that are included in the Nifty 50 index.

Company Name

Sector

Weightage

Since

Infosys

Information Technology

7.66%

7th October, 1998

HDFC Bank

Banking

9.79%

22nd April, 1996

Hindustan Unilever

Consumer Goods

3.1%

22nd April, 1996

Reliance Industries

Diversified

10.36%

22nd April, 1996

Tata Consultancy Services

Information Technology

4.85%

25th February, 2005

Eichers Motors

Automobile

5.74%

1st April, 2016

Bharat Petroleum

Energy and Oil

0.41%

28th October 2002

Cipla

Pharmaceutical

0.664%

&th October 1998

Titan Company

Consumer Durables

1.62%

2nd April, 2018


How is the Nifty 50 Index Calculated?

The Nifty 50 in the share market is managed by the NSE Indices, which have an active Advisory Committee that works to provide their expertise on the changing index. The methodology used to calculate this is based on weighted market capitalization and float adjustment. This method reflects the aggregate market value of the concerned stocks at a given period of time, called the base period in the index.

The base period for Nifty 50 is 3rd November 1995, with a value of 100 and a capital of 2.06 trillion Rupees.

To calculate the index value, the market value of a given company at present is divided by the stipulated base value times a thousand.

The formula used to calculate this is:

Index Value= Present market value / (Base market Value*1000)

How do nifty investments work?

Three main methods are available to consider your investments in the Nifty 50. These are:

1.    Direct Investments

This is where you invest directly by purchasing stocks of the listed companies in the Nifty 50 index. This is done through a demat account.

2.    Indirect Investment

This is done through mutual funds, ETFs or exchange-traded funds.

3.    Between ETFs and Index funds

Based on your preference or goals, you can choose between trading ETFs like stocks or buying index funds at NAV or net asset value at the end of the end of the trading day.

Takeaways

If you've been confused so far about what is nifty fifty, streamlining the information can be of great help before you start investing. Financial literacy is one of the most important contributors to self-empowerment and autonomy. Understanding your tolerance for risks and figuring out your aims of investment can go a long way in helping you make well-informed and considered decisions about your future.


Team Sharekhan
by Team Sharekhan

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