Meaning of Nifty

Are you a regular user of NSE and Nifty terms without fully understanding the meaning? This guide will help you understand Nifty, India's most widely used benchmark index for equity shares.

What's Nifty in the Share Market?

The National Stock Exchange (NSE) introduced Nifty, a popular stock exchange index. Nifty is a combination of "National Stock Exchange", "fifty" and "fifty". This is because NIFTY 50, a benchmark index created by the National Stock Exchange (NSE), showcases the 50 best-performing equity stocks being traded on the platform. In a single trading day, 1600 stocks trade on the NSE.

We now know . The Nifty 50 index consists of stocks that cover 12 sectors of the Indian economy. These include financial services and telecommunications. Information technology also includes consumer goods and media. Nifty tracks the trends and patterns of blue-chip businesses. These are India's largest and most liquid businesses.

NIFTY 50 is one among two Indian national benchmark indices. The other benchmark is SENSEX. It includes the 30 most performing stocks on Bombay Stock Exchange. There are many sub-indices within Nifty. These include the NIFTY IT and NIFTY Next 50 sub-indices, which each detail distinct asset classes, segments, or categories.

Eligibility Criteria for NIFTY Listing

NIFTY is reconstituted every six months to keep abreast of the most recent stocks and trends. It reviews the stocks' 6-month performance and determines if shares meet the eligibility criteria. NSE Indices Limites currently has a team that manages the NIFTY Index.

This committee provides guidance and expertise to large-scale issues related to equity indices. The index managers will then remove or add old or new stocks from the benchmark. Companies are required to be involved in the reconstitution of new additions 4 weeks before. The following criteria must be met in order to be eligible for NIFTY listing.

  • While the company is a resident of the country, it must also be registered with the National Stock Exchange.
  • Stocks of the company should be liquid. This is determined by their average impact cost. The impact cost is the price you pay to trade a single security relative to its index weight, as measured by the company's market capitalization. The company's impact costs should be lower than or equal to 0.5% for a period of six months. This is if 90% of sightings and analyses are made on portfolios exceeding Rs10 crores.
  • In the last six months, the trading frequency of the company must be at least 100%.
  • A company should have an average free-floating market capitalization. Market capitalization should be 1.5x greater than that of the smallest index company.
  • All companies with DVR shares, i.e. shares with 'Differential Voting Rights,' are eligible to join Nifty 50.

Nifty's 6-month reconstitution process is not the only one. The index undergoes reconstitution whenever a company experiences events such as spin-offs or compulsory delistings. Nifty conducts quarterly screenings of all its companies in order to monitor compliance with the ETF and Index Fund regulations. SEBI (the Securities and Exchange Board of India) keeps publishing new mandates for companies to follow, otherwise they could be removed from indices such as Nifty.

What is NIFTY Calculated?

Indices for Nift 50 are computed through a float-adjusted as well as market capitalization-weighted method. The index level shows the total market value of all shares in the index for a given period. The base period for Nifty is November 3, 1995. The base value of the index is 1000, and its capital is Rs2.06 trillion. This formula calculates the index's value:

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

However, the formula is only one way to calculate value. Other corporate-procedures, such as stock splits and rights insurance, are also considered. NIFTY serves as a benchmark for all Indian equity share markets. It regularly conducts index maintenance inspections. It is maintained stable and functioning effectively to ensure it remains a benchmark index in India.

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