Nifty Fifty: What it is and how it Works

What Is the Nifty Fifty?

The Nifty meaning is a derivation from the mix of two words, i.e. “National Stock Exchange” and “fifty”. It is an abbreviation of the National Stock Exchange Fifty. It is a collection of top performing 50 equity stocks that are actively trading in the index. However, 51 stocks are currently trading on Nifty. Hence, Nifty is also known as Nifty50 or CNX Nifty.

Nifty is a popular stock index. The National Stock Exchange of India introduced it. This index was founded in 1992 and started trading in 1994. It is owned and managed by India Index Service & Products Limited (IISL). IISL is an Indian specialized company which focuses on an index as its focus product. It has a variety of financial products like index funds, index futures and options, stock futures and options, etc.

Now, let’s understand, what this NIFTY 50 does. Nifty 50 is a diversified market capitalisation-weighted index of India’s top 50 companies listed on the NSE. It represents the overall economic conditions of the Indian market via the included 50 stocks spanned over 13 sectors. These sectors are automobile, banking, cement, construction, consumer goods, energy, financial services, IT, infrastructure, media and entertainment, metals, pharmaceuticals and telecommunication.

Top constituents of NIFTY 50 by weightage

Company NameIndustryWeightage
Reliance Industries LtdOil & Gas10.32%
HDFC Bank Ltd.Financial Services9.38%
ICICI Bank Ltd.Financial Services8.08%
Housing Development Finance CorporationFinancial Services6.34%
Infosys Ltd.IT5.63%
ITC Ltd.Consumable Goods4.73%
Tata Consultancy Services Ltd.IT4.16%
Larsen & Toubro Ltd.Construction3.60%
Kotak Mahindra Bank Ltd.Financial Services3.59%
Axis Bank Ltd.Financial Services2.97%

How is the Nifty calculated?

The market capitalisation of companies is determined by calculating the Nifty. It involves multiplying the company’s share price with the equity to calculate market capitalisation. 

The equity capital is then multiplied by the share price to calculate free-float market capitalisation. Moreover, whatever result you get must be multiplied by the IWF (Investable Weight Factor), which shows the share proportions traded by investors in the stock market. 

The Nifty is calculated using the base value of 1,000. The market value is divided by the base market capital multiplied by the base value of 1,000 to determine the index value of Nifty daily. 

The formula for calculating Nifty Index:

Market Capitalisation = Equity Capital * Share Price

Free float market capitalisation = Share Price * Equity Capital * Investable Weight Factor (IWF)

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

The formula also determines changes in corporate action such as rights issues, bonus issues, stock splits etc. 

Which companies are a part of Nifty? 

For the latest stock performance, the Nifty index reconstitution happens every six months. It checks the 6-month performance of the stocks. It also checks if the companies fulfill the eligibility criteria. Following these criteria, it eliminates or adds stocks in the stock list, respectively. In case of any elimination or addition, the respective company is given a notice four weeks prior to reconstitution.

The NSE indices have an excellent team of professionals that manage the Nifty index. It is an advisory committee that offers guidance and expertise on issues that relate to equity indices.

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