Everybody must have been puzzled by the word ‘NIFTY’ at some point of time in their life. So, what is Nifty? To put it simply, Nifty is the equity benchmark index of one of the biggest stock exchange of India. Nifty is the index of NSE (National Stock Exchange) which was started to end the monopoly of BSE (Bombay Stock Exchange) in the Indian Market. The term Nifty is derived from the word National and Fifty, which means that Nifty only consists of top 50 companies from 12 different sectors. Another word also used for Nifty is ‘NIFTY 50’ as described earlier that it contains only top 50 companies across various dimensions.
The major part of the economy of the country is dependent on the stock exchange and the indexes of the major stock exchanges give exposure to the investor of how good the economy of the country is and how beneficial it is to invest in share market in the prevailing market conditions. As we have understood now that Nifty is computed from the performance of the top stocks of the masters of the industry so it gives us the average value of the top industries. Some other money instruments like mutual funds, uses Nifty as benchmark and the performance of the mutual funds is assessed against the performance of the Nifty. NSE is famous for futures, options and intra-day trading and all of them trades with Nifty as an underlying index. When Nifty shows great progress that indirectly means that our domestic market is doing good and our economy is growing well.
Well now this looks tricky! This must be your expression but it isn’t that tricky. Nifty is calculated by using the market capitalization weighted method as per which weights are assigned as per the size of the company, larger the size, larger the weightage. This is why the larger stocks would make more difference than the smaller ones in the market. Two universal points while calculating Nifty is: The base year is taken as 1995 and the base value is set to 1000.
Market Capitalization = Shares outstanding * Market Price per Share Free Float Market Capitalization = Shares outstanding * Price * IWF (Investible Weight Factor) Index Value = Current Market Value / Base Market Capital * Base Index Value (1000)
