InvestorQ : Can you explain about the Nifty Index and how it is calculated in practice and its key features?
Crowny Pinto made post

Can you explain about the Nifty Index and how it is calculated in practice and its key features?

2 years ago

The NIFTY 50 is the flagship index on the National Stock Exchange of India Ltd. (NSE). The Index tracks the behaviour of a portfolio of blue chip companies, the largest and most liquid Indian securities. It includes 50 of the approximately 1600 companies listed on the NSE, captures approximately 65% of its float-adjusted market capitalization and is a true reflection of the Indian stock market.

The NIFTY 50 covers major sectors of the Indian economy and offers investment managers exposure to the Indian market in one efficient portfolio. The Index has been trading since April 1996 and is well suited for benchmarking, index funds and index-based derivatives.

The NIFTY 50 is owned and managed by NSE Indices Limited (formerly known as India Index Services & Products Limited-IISL), India’s first specialized company focused on an index as a core product.

Key highlights of the Nifty Fifty index

Like every index, the Nifty is also based on the concept of base year but it has some unique features to be aware of. They are captured here.

· The NIFTY 50 is a 50 stock, float-adjusted market-capitalization weighted index for India. It is used for a variety of purposes, such as benchmarking fund portfolios, index based derivatives and index funds.

· The NIFTY 50 is derived from economic research and is created for those interested in investing and trading in Indian equities.

· Let us now look at the market representation of the Nifty 50 index. The NIFTY 50 stocks represent about 65% of the total float-adjusted market capitalization of the National Stock Exchange (NSE).

· We now turn to the aspect of liquidity. Market impact cost is the best measure of the liquidity of a stock. It accurately reflects the costs faced when actually trading an index. For a stock to qualify for inclusion in the NIFTY 50, it has to reliably have market impact cost below 0.50 %, when doing NIFTY 50 trades of Rupees (Rs) 10 crores.

Trading in derivative contracts based on NIFTY 50

The National Stock Exchange of India Limited (NSE) commenced trading in derivatives with index futures on June 12, 2000. The futures contracts on the NSE are based on the NIFTY 50. The exchange introduced trading on index options based on the NIFTY 50 on June 4, 2001. Additionally, exchange traded derivatives contracts linked to NIFTY 50 are traded at Singapore Exchange Ltd. (SGX) and Taiwan Futures Exchange (TAIFEX)