Understanding Nifty 50

Beginners Guide To Understanding Nifty50

The stock market holds great importance in the capitalistic economy of any country. It is where individual and corporate investors partake in trading stocks with each other. The stock market defines the market value of every product, bond, stock, or share that can be traded, depending on consumer demand. Today, almost all stocks are digitally traded, as it is more secure and convenient.

What is Nifty50?

In India, the stock market has two significant stock exchanges – The BSE or Bombay Stock Exchange and The NSE-National Stock Exchange. Nifty or Nifty50 is the benchmark index of the NSE and was introduced originally in 1996. The name is derived from the culmination of the words national and fifty, which signifies the weightage of India’s 50 most influential companies.  It reflects on where the stocks and their values of these companies stand. Nifty share prices set a standard for the broader economy.

Nifty consists of fifty actively traded stocks on a general basis. However, currently, there are 51. Nifty can also be known sometimes as CXN Nifty and is owned by India Index Services and Products Ltd or the IISL.

How can the Nifty50 be calculated?

Nifty follows a simple mathematical formula based on the market capitalisation. The Index is calculated by first multiplying the Equity capital with a price to derive the market capitalisation. Next, for the Free-float market capitalisation to be calculated, equity capital is multiplied by a price, which is further multiplied with IWF, which is the factor for determining the exact number of shares available for trading freely in the market. The Index is determined every day by taking the current market value divided by base market capital and then multiplying it by the Base Index Value of 1000.

Nifty50 is calculated using the free-float market capitalisation-weighted method. The market capitalisation is calculated by multiplying equity capital. To measure free-float market capital, equity capital is then multiplied by IWF, the aspect that determines the clear amount of shares that can be traded in the market immediately. Calculations are done every day.

Market capitalisation = Equitycap*cost

Free float market capitalisation= Equitycap*cost*investable weight

Index value= Present market value/Base market capital* Base index value (1000)

The index is calculated on a real-time basis, as the value of scrip changes.

Are Sensex and Nifty50 the same?

Both Nifty and Sensex are large-cap indexes that stem from India’s two different parent stock exchanges, The BSE and The NSE. Both are a statistical aggregate on how changes in the secondary market can be measured.

Sensex and Nifty 50 are not the same but are similar in some senses. Sensex stands for sensitive index and is the index indicator for the BSE in the secondary market. This index, also known as BSE Sensex, was first published in 1986 and is based on the market weighed stocks or actively traded stocks of 30 companies based on their financial progress. Many huge companies and conglomerates are a part of this.

What method is used to calculate Sensex?

A free-float method came into existence in 2003 and is used by the BSE to calculate Sensex. Its level is directly proportional or indicative of the performance of the 30 active stocks in the market. This method also accommodates the amount of proportion of stocks and shares that can be sold immediately.

Nifty50 is very similar to Sensex, and both are large indexes in the stock market. Both of them are used to look into the value of the stock market. Nifty is more preferred, as it has more and diverse companies and more listed stocks. Both target the large companies, and their performance over the years is fairly familiar.

This article is written by David Smith, a copywriter and content strategist. He helps businesses stop playing around with content marketing and start seeing the tangible ROI quickly. He loves reading books and car racing.

Check Also

What is the Safest Way to Invest Money

Beginner Guide: What is the Safest Way to Invest Money

When it comes to what is the safest way to invest money or just simply …

Leave a Reply

Your email address will not be published. Required fields are marked *