Nifty 50 Performance: Today's Prices & Analysis

The 50 companies that form the NIFTY 50 index, as of April 2018, have been listed below. Of these 50 companies, HDFC Bank Limited has the highest weightage at 9.88% followed by other big players like Reliance Industries Limited and Housing Development Finance Corporation. Infosys Limited is leading the way for the IT sector at 5.80%.

Eligibility Criteria for Nifty 50(Fifty)

As per the NIFTY 50 index methodology published by the IISL, the eligibility criteria that must be fulfilled by a company to become a part of the index are as follows:

1. The company must be based in India and listed on the National Stock Exchange.
2. In order to be included in the NIFTY 50 index, the stock must be available for trading in the NSE's Futures & Options segment and must be a part of NIFTY 100.
3. Equity securities with Differential Voting Rights (DVR) are eligible to be a part of the index, provided they fulfil certain requirements.
4. The stock under consideration must have traded at an average impact cost of 0.50% or less, over the course of last six months for 90% of the observations. Impact cost is nothing but the cost incurred by the buyer or seller while executing a transaction of a given security, with a pre-defined order size.
5. The company's trading frequency must be 100% for the previous six months.
6. The average free float market capitalisation of the company must be at least 1.5 times the average free float market capitalisation of the smallest constituent of the NIFTY 50.

How is NIFTY 50 Calculated?

Before we begin to understand how NIFTY 50 is calculated, there are a couple of things that you need to keep in mind.

1. Free float market capitalisation is the market capitalisation calculated for all the shares which are publicly available for trading. It is important to remember that free float market capitalisation does not take those shares into account which are held by promoters, government, employee welfare funds, or any corporate entity. The proportion of shares which are held by the general public and are available for trading is represented by a ratio known as Investible Weight Factor (IWF).
2. The base year is 1995 and the base value is 1,000. The base market capital is the market capitalisation of the company in the year 1995.
3. NIFTY 50 index is calculated for the 50 stocks which are actively traded on the NSE.
4. Base market capital is the aggregate market capitalisation of each stock in the index during the base period.

Therefore,

Free float market capitalisation = (Shares outstanding) x (Price) x (IWF)

Index Value = (Current Market Value)/(Base Market Capital) x (Base Index Value)

To understand this better, let us consider an example. For the sake of simplicity, let us assume that NIFTY comprises only two companies - X and Y.

Company X has a total of 1,000 shares of which, 300 are held by promoters while the remaining 700 are held by the general public, and are available for trading. As for the Company B, it has a total of 1,500 shares of which 1,000 are available for active trading and the remaining 500 are with promoters, governments and corporate entities.

The share price of Company X is Rs.20 and the share price of Company Y is Rs.30. The base market value of the two companies is Rs.6,000.

Hence,

X's free float market capitalisation = 700 x 20 = Rs.14,000

Y's free float market capitalisation = 1,000 x 30 = Rs. 30,000

Total free float market cap of the two companies = Rs.44,000. Therefore, NIFTY = (44,000)/(6,000) x 1,000 = 7,333.3

Factors Affecting NIFTY 50

Considering that NIFTY 50 is essentially a combination 50 stocks, its performance is likely to be determined by a plethora of factors which affect stock markets. Some of these factors are:

1. Gross Domestic Product Data
2. Index of Industrial Production
3. RBI repo rates and the structure of interest rates
4. Government stability and performance
5. Performance of international markets
6. Global news and international developments
7. Inflation data
8. Volatility in gold and fuel prices

How to Invest in NIFTY 50?

To invest in NIFTY 50 stocks, all you have to do is open a DEMAT account and a trading account with any of the leading stockbrokers in the country. Keep in mind that you will be required to fulfil KYC formalities in order to open an account.

Stocks vs. Mutual Funds: Here's What We Recommend

Stock market investments require a lot of research and knowledge. They do not generally offer any tax benefits and are regarded as high-risk investments. Hence,it is crucial to have a diversified portfolio. At Bankbazaar, we encourage our readers to invest on mutual funds.It doesn't require a lot of knowledge and equity linked mutual fund schemes offer tax benefits. Additionally, since mutual funds comprise stocks from multiple companies, they help in building a diversified portfolio.