Understanding How is Nifty 50 Calculated: At the start of this new Year 2021, Nifty touched the new height of 14,000 points for the first time ever. A good sign for the Indian markets as they keep soaring higher. But have you ever wondered how the index value was arrived at?
Today, we discuss the calculation of one prominent index in Indian markets called the Nifty 50. Here, we’ll discuss How is Nifty 50 Calculated and also look into the constituents of Nifty50. Let’s get started.
What is Nifty 50?
An Index is basically the stock exchange creating a portfolio of the top securities held by it. Indexes have always played an important role for both investors and companies by offering a reliable benchmark. Investors may use it to compare the performance of the index vs. their portfolio and the management of a company may use it to judge the performance of their company’s stock.
Indexes have also been used as an investment strategy where Investment Managers just set up their fund portfolios to simply track the index in an attempt to gain similar market returns. Indexes play an important role as they also stand in the representation of a country’s market and economy.
Nifty is derived from ‘National’ (National Stock Exchange) and Fifty. The Index was founded in the year 1992 and began trading in 1994. It is owned and managed by the India Index Service and Products (IISL). The Nifty 50 is a broad market index that acts as an indicator of market movements.
As the Nifty 50 includes the biggest Indian companies it captures 65% of the float-adjusted market capitalization of the NSE. It is therefore considered a true reflection of the Indian stock markets.
How is Nifty 50 calculated?
The Nifty 50 index is calculated using the Float-adjusted and Market Capitalization Method. This method reflects the total market value of all the 50 stocks in the index relative to the base period. The base period for the Nifty 50 is taken as November 3, 1995.
The First step includes the calculation of the Mcap of all the companies. This represents the total value of all the shares of a company held by investors in the market.
Market capitalization = (Shares Outstanding) x (Current Price)
The Second step includes multiplying the Mcap with the Investable Weight Factor (IWF). The Investible weight is a factor used to determine the shares available for trading. only considers shares that are available for public trading. This excludes shares held by company promoters, government, shares given to employees, etc.
Free-float Market Capitalization = (Market capitalization) x (Investable Weight Factor(IWF))
Third Step. Here, the Free Float Market Cap is then multiplied by the weight assigned to the individual stock.
Therefore the calculation for an individual stock would look as follows
Weighted Free Float Market Cap = (Market Cap) x (IWF) x (Weight)
Fourth Step. We now divide the current market value with its base value from 1995 in order to arrive at the value of the Index. The Current Market Value is the sum total of the Weighted Free-float Market Cap of all the stocks. The Base Market Capital is taken from 1995 which stands at Rs. 2.06 trillion.
Index Value = (Current Market Value/Base Market Capital) * 1000
Meet the Nifty 50 Stocks
|1.||Reliance Industries Ltd.||Energy - Oil & Gas||10.56%|
|2.||HDFC Bank Ltd.||Banking||8.87%|
|3.||Infosys Ltd.||Information Technology||8.62%|
|5.||ICICI Bank Ltd.||Banking||6.72%|
|4.||Housing Development Finance Corporation Ltd.||Financial Services||6.55%|
|6.||Tata Consultancy Services Ltd.||Information Technology||4.96%|
|7.||Kotak Mahindra Bank Ltd.||Banking||3.91%|
|10.||Larsen & Toubro Ltd.||Construction||2.89%|
|8.||Hindustan Unilever Ltd.||Consumer Goods||2.81%|
|11.||ITC Ltd.||Consumer Goods||2.63%|
|13.||Bajaj Finance Ltd.||Financial Services||2.52%|
|12.||State Bank of India||Banking||2.40%|
|14.||Bharti Airtel Ltd.||Telecommunication||2.33%|
|9.||AXIS Bank Ltd.||Banking||2.29%|
|14.||Asian Paints Ltd.||Consumer Goods||1.92%|
|16.||HCL Technologies Ltd.||Information Technology||1.68%|
|23.||Bajaj Finserv Ltd.||Financial Services||1.41%|
|24.||Titan Company Ltd.||Consumer Goods||1.35%|
|25.||Tech Mahindra Ltd.||Information Technology||1.30%|
|17.||Maruti Suzuki India Ltd.||Automobile||1.28%|
|19.||Wipro Ltd.||Information Technology||1.28%|
|20.||UltraTech Cement Ltd.||Cement||1.17%|
|18.||Tata Steel Ltd.||Metals||1.14%|
|30.||Tata Motors Ltd.||Automobile||1.12%|
|22.||Sun Pharmaceutical Industries Ltd.||Pharmaceuticals||1.10%|
|21.||Mahindra & Mahindra Ltd.||Automobile||1.09%|
|31.||Power Grid Corporation of India Ltd.||Energy - Power||0.96%|
|28.||Nestle India Ltd.||Consumer Goods||0.93%|
|32.||Grasim Industries Ltd.||Cement||0.86%|
|33.||HDFC Life Insurance Co. Ltd.||Insurance||0.86%|
|34.||Divi’s Laboratories Ltd.||Pharmaceuticals||0.84%|
|36.||Hindalco Industries Ltd.||Metals||0.82%|
|26.||JSW Steel Ltd.||Metals||0.82%|
|35.||NTPC Ltd.||Energy - Power||0.82%|
|27.||Dr. Reddy’s Laboratories Ltd.||Pharmaceuticals||0.77%|
|29.||IndusInd Bank Ltd.||Banking||0.72%|
|44.||Oil & Natural Gas Corporation Ltd.||Energy - Oil & Gas||0.70%|
|41.||SBI Life Insurance Co.||Insurance||0.69%|
|38.||Adani Port and Special Economic Zone||Infrastructure||0.68%|
|40.||Tata Consumer products Ltd.||Consumer Goods||0.63%|
|37.||Bajaj Auto Ltd.||Automobile||0.57%|
|45.||Britannia Industries Ltd.||Consumer Goods||0.57%|
|43.||Bharat Petroleum Corp. Ltd.||Energy - Oil & Gas||0.48%|
|48.||Shree Cement Ltd.||Cement||0.47%|
|47.||Eicher Motors Ltd.||Automobile||0.45%|
|49.||Coal India Ltd.||Mining||0.43%|
|46.||Hero MotoCorp Ltd.||Automobile||0.43%|
|50.||Indian Oil Corporation Ltd.||Energy - Oil & Gas||0.41%|
The value of the index changes on a real-time basis in relation to changes in the stock price. Over time older companies that fail are replaced by newer companies that satisfy the requirements of the Index. The calculation shown above is restricted to the Nifty. Other Indexes like the Sensex use different base periods, base values, and are computed differently.
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.