NIFTY is comprised of the words ‘National’ and Fifty’.
As of April 21, 1996, Nifty was introduced by National Stock Exchange as a benchmark equity index. Furthermore, it changed its name to Nifty 50 in 2015. NIFTY refers to an index made up of the 50 most active stocks from all sectors. The Nifty index, however, currently trades 51 stocks. Thus, Nifty 50 or CNX Nifty is also called Nifty.
In India, there are two national stock markets and one of them is the NIFTY, the other is the Sensex, a product of the Bombay stock exchange. CRISIL and the National Stock Exchange jointly run India Index Services & Products Limited (IISL), which maintains Nifty.
As a part of the futures and options segment of NSE, which deals in derivatives, Nifty consists of a number of indices-Nifty50, Nifty IT, Nifty bank, and Nifty next 50. The Index Information Services Limited is a company which is specialized in the index as its main product. ETFs, ETF F&Os, other index funds, and OTC derivatives make it one of the largest financial products on the market.
Companies included in the Nifty50
The following parameters and eligibility criteria must be met by the companies in order for them to qualify for the Nifty50.
- A market price of 0.50% or less should have been reached during the last six months, indicating liquidity.
- A float adjustment is necessary, where the companies’ float adjusted market capitalization is at least twice that of today’s smallest index constituent.
- Companies listed on the NSE and domiciled in India should be listed.
The process to buy Equity in the secondary market is very easy. The following procedure is followed while buying or selling shares in the secondary market:
- Open demat account with a depository participant (DP).
- Open a trading account with a broker.
- Link your bank account with demat and trading account.
- The broker buys or sells the shares by executing orders on the electronic terminal provided by the stock exchange.
- A contract note is issued by the broker detailing the value of shares purchased plus his brokerage cost.
- The broker collects shares via settlement process (T+1) and makes payment on the behalf of investor.
- Order gets executed on the final settlement date (T+2).
Nifty is calculated in what way?
In this algorithm, free-float market capitalization is weighted with reference to a base period, so the index level reflects total market value relative to that period.
Equity Capital * Share Price = Market Capitalization
Market capitalization according to free float = Equity Capital x Price * Investible Weight Factor
The Index Value is calculated using Current Market Value / Base Market Capital * Base Index Value (1000)
A factor called IWF determines how many shares are available for trading. As scrip values change daily, the index is also calculated on a real-time basis each day.
NIFTY is calculated by considering four factors.
Based on the NSE’s 50 most actively traded stocks.
1995 is the base year.
The base value is 1000.
NIFTY is based on 50 stocks and there are 50 stocks chosen from 24 sectors.
How do you define BSE ?
A former name for BSE was Bombay Stock Exchange. In Mumbai, India, it is located on Dalal Street and was established in 1875. A stock exchange that trades at a speed of six microseconds is Asia’s first and fastest. India’s first stock exchange, BSE, is listed on BSE.
Trading in equity, mutual funds, derivatives, debt instruments, and currencies is carried out through BSE with efficiency and transparency.
Apart from trading, the company also provides services such as risk management, clearing, settlement, and investor education.
The popular equity index of the BSE is the BSE Sensex. The BSE Sensex ranks among the most widely tracked indices. Furthermore, the BSE Sensex is traded on EUREX and on exchanges in Brazil, Russia, China, and South Africa (BRCS nations).
How do you define NSE ?
It was incorporated in 1992 as the National Stock Exchange of India Ltd. The stock exchange is India’s largest financial market. Among all stock markets in India, it has the highest average daily turnover for equity shares. Since it is vertically integrated, it has a low overhead cost. The report recognizes that technology is at the core of financial markets, which will lead to greater transparency in the marketplace.
Its products are divided into three asset classes for trading, namely equities, derivatives, and fixed-income securities. A variety of equity products are available for trading, including mutual funds, stocks, ETFs, closed-ended mutual funds, and Indian Depository Receipts (IDRs).
Contracts for equities, currencies, commodities, and interest rates make up derivatives. Bonds issued by sovereigns, corporate bonds, tri-party repo, and other debt securities contain fixed income.
Services provided by NSE include trading, clearing, exchange listings, financial education, and technology solutions. The Nifty 50 index trades on the Singapore Exchange and on the Chicago Mercantile Exchange respectively as SGX Nifty and CME Nifty.
What does Sensex mean?
The term Sensex was introduced by stock market analyst Deepak Mohini. Index and sensitive are portmanteaux. Sensex reflects the performance of the Bombay Stock Exchange (BSE).
On the BSE, there are 30 stocks in the Sensex Index. The most active stocks and the largest on the BSE are these stocks. The following factors determine the selection of stocks:
The company is listed on the BSE
which makes it a large-cap stock.
The stock has a fair amount of liquidity.
The company generates revenue from its core business.
The company has diversified and balanced sector involvement according to Indian equity markets.
The Sensex is a barometer for the Indian stock market.
In other words, when the Sensex rises, the 30 underlying stocks’ prices increase. The Sensex has dropped if the underlying 30 stocks have declined as well
In India, the Sensex is one of the oldest indices and is often regarded as a symbol of the economy. Research analysts look at Sensex to understand the country’s stock market trend, industry growth, and the country’s overall growth.
What makes Nifty different from Sensex?
Sensex and Nifty are both geared towards large-cap stocks, therefore there is little difference in how they are calculated. Indicators of the strength of the stock market, Nifty and Sensex are both used. National Stock Exchange (NSE) reflects the value of the Nifty, while the Bombay Stock Exchange (BSE) reflects the value of the Sensex.
Considering the number of listed securities, the Nifty index features 50 stocks, while the Sensex index features 30 stocks. Moreover, Nifty is generally considered to have a broader portfolio than Sensex. In comparison with BSE, the NSE is observed to be more active when it comes to trading.
Indices of the stock market
There are a variety of indices in the stock market. Some of the most popular ones are:
The benchmark index
Benchmark indices also provide insight into market performance. As a result, it Market trends are mostly determined by benchmark indexes. These provide insight into the stock compares the market return from an average fund with what it would have earned. NIFTY50 and BSE Sensex are examples of benchmark indices.
Broad Market Index
Benchmark indices include the broad market index. However, they contain more stocks than the broad market index. The BSE Sensex index, for example, includes 30 of the largest companies. By contrast, the BSE 100 index consists of 100 of the largest companies in India.
Market Capitalization Index
Based on their market capitalization, or the value of their outstanding shares, the market capitalization index consists of stocks. The BSE Midcap and the NIFTY Smallcap, for example.
Indexes based on sectors or industries
A sector or industry index includes companies or stocks within that sector or industry. For instance, stocks in industries like banking, healthcare, and technology. Sector or industry-based indices include the NIFTY FMCG Index, the CNX IT Index, the NIFTY Pharma Index, and the NIFTY Financial Services Index.
That’s all for now.
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