NIFTY - Meaning, Eligibility & Calculation Explained | Espresso

Nifty Meaning Explained

If you're reading this blog, you are probably familiar with the term Nifty. But do you know the full form? Or who owns the Nifty? Or the proper Nifty meaning? Well, don't worry. We got you covered.

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This blog will answer all your questions about Nifty, often referred to as an indicator for assessing the health of the Indian economy. So, without further ado, read on to learn more about these values, which hold the key to the heart of the country's economy.

What is NIFTY?

NIFTY is a stock market index that has been provided by the NSE (National Stock Exchange). It is a compound word of National Stock Exchange and Fifty, introduced by the NSE on April 21, 1996. The NIFTY 50 is an underlying index, and NSE's flagship index shows the top 50 traded equity stocks in the stock exchange from a pool of 1,600 listed stocks.

These stocks cover twelve sectors of the Indian economy, including financial services, information technology, media and entertainment, consumer goods, financial services, pharmaceuticals, metals, cement products, telecommunications, automotive, energy, pesticides and fertilisers, and other related services.

NIFTY is known as one of the two national indices, and the other is SENSEX, a commodity of the BSE(Bombay Stock Exchange). It is owned by IISL (India Index Services and Products), a subsidiary of NSE Strategic Investment Corporation Limited.

NIFTY follows patterns and trends of blue-chip companies, which are considered the most liquid and sizable Indian securities.

NIFTY includes many indices such as NIFTY IT, NIFTY 50, NIFTY Next 50, NIFTY Bank. It is a segment of the Futures and Options (F&O) division of NSE, which deals with financial derivatives.

Eligibility Criteria for NIFTY Index Listing

We hope by now you've got an idea of what is a NIFTY index. But do you know the eligibility criteria for the NIFTY Index listing? If not, then look at the points below:

  • Companies must be registered with the NSE (National Stock Exchange) and must be a domicile of India.
  • Stocks should be highly liquid, as evaluated by their regular impact cost (the cost of executing a security trade against the weight of an index calculated through its market capitalization.) It must be 0.50% or less than that for six months. 90% of observations are formulated on a ₹10 crores portfolio.
  • The company's trading frequency must be 100% for the previous 6 months.
  • It should have a free-floating average market capitalisation that is 1.5 times the smallest component of the index.
  • Shares having DVR or Differential Voting Rights may also be included in the index.
  • The NIFTY Index is rebuilt every 6 months and evaluates the stock performance (returns) during that period. Based on these indicators, if the company and its shares meet every eligibility criterion stated above, the listing may exclude or include new/old shares, respectively. New additions or deletions will notify the relevant company 4 weeks before re-establishment.
  • In addition to regular procedures, reinstatement may also be carried out if the company implements a plan of action, including spin-offs, suspensions, compulsory delisting, and mergers.

How to Calculate NIFTY Index Price?

NIFTY share index is conducted by a professional team of NSE Indices Limited. In addition, it has formed the Index Advisory Committee to provide its guidance and expertise on large-scale issues related to equity indices.

NIFTY50 indexes are calculated using the adjusted floating rate method and are weighted by market capitalisation. According to this method, the index level represents the total market value of the stocks included in the index over a specific reference period. The base period of this NIFTY 50 index is November 3, 1995, wherein the index’s base value is 1000, and the base capital is ₹ 2.6 trillion.

Here's the NIFTY index price calculation formula:

Index Value = Current Market Value or MV / (Basic Market Capital * 1000)

Index Calculation methodology also examines changes in corporate activity consisting of stock splits, rights issuance, etc. The NIFTY share market is basically the benchmark against which every stock market in India is measured. Thus, NSE maintains the index regularly to ensure its stability and keeps up as a benchmark in the context of the Indian stock market.

Frequently Asked Questions

Let's make it clear-cut. When you buy a bag full of vegetables and come back home, your spouse or mother will probably ask you about the market rates. You might reply to them by saying that the market prices are low or high. You just purchased several types of vegetables and concluded about the typical prices in the market. Isn't it?

Similarly, NIFTY is that bag of top 50 stocks, the largest of the approximately 2,500 shares listed on the NSE. Therefore, the performance of such 50 stocks serves as an indicator with regard to market performance.

NIFTY is the name given to 50 publicly traded companies that serve as indicators of the Indian stock market performance.

 

 

Sensex and NIFTY are both sides of the same coin. Both are group stocks and stock market indices based on market capitalisation. The only differences are the number of shares each holds, their establishment date, the stock exchange to which it is linked.