Nifty is the most closely watched index in India along with Sensex. How was the year 2018 for Nifty and what factors affected it? Read on to know all you need to know about Nifty in 2018 and going forward in 2019.
In this article
Indian share market ended nearly flat on the last trading day of the year 2018. This was because of positive global cues and a stronger rupee against the US dollar. But it posted their third consecutive yearly gain.
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The Nifty, also known as Nifty 50, is up nearly 3.5% in the year 2018. Domestic stocks have fared better than most of the stock markets around the globe.
Let’s look into Nifty and its performance over the years.
Nifty performance in 2018
As the year 2018 comes to an end, the Nifty looks set to close on a positive note despite witnessing volatile phases of trade during the past 1-year period.
Nifty started with 10,442 points at the beginning of the year 2018 and ended with 10,862 points.
That is Nifty has logged nearly 3.5% gains between January 2018 to December 2018.
But the gains look mediocre when compared to the rise the benchmark indices clocked in the year 2017. The Nifty ended 2017 with a gain of around 29%.
In 2018, for the first time, Nifty passed the point of 11,700 in intra-day trading. On 28th August 2018 Nifty reach an all-time high of 11,738.50.
Comparing with big global markets, while the Dow Jones index is down 7.5% in the year 2018, Nasdaq has lost 5.4% during the same period.
Indian domestic stocks have fared better than most global equities.
But we have seen high volatility in the last 1-year in Indian market which led to the sharp ups and downs of Nifty in 2018.
Why is Nifty down 2018?
1. Tumbling Rupee against US Dollar
2. Rise and fall in the price of crude oil in the global market
4. India’s Current Account Deficit (CAD)
5. Volatility in Global Markets
But even after all these factors, the index ended 2018 in green and Indian market as one of the best-performing Asian market and the best-performing major global market after Brazil.
The strong fundamentals of the Indian economy, falling commodity and crude prices have insulated the Indian stock market from the global stock market slowdown.
Nifty since 2008’s crash
In 2008, Nifty recorded its largest single-day drop. This was in line with the global financial meltdown.
The year 2008 has been a devastating year for the Indian stock markets, after scaling the 6,279 peaks in January 2008, the index was at 2,788 by December.
During the global financial crisis of 2007-2008, the stock markets in India fell a number of times in 2007 as well as 2008.
The index crashed by around 50% and individual stocks crashed by 80-90% in the 2008 year but then it jumped by more than 100% in next one year.
Nifty since it was introduced
Nifty Index has shaped up as the largest single financial product in India, with an ecosystem comprising of exchange-traded funds (onshore and offshore), exchange-traded futures and options, other index funds and OTC derivatives (offshore).
It is also the world’s most actively traded contract.
Nifty experienced enormous growth in the first decade of the 21st century, rising from 1,080 points in 2002 to one of 5,742 in 2007.
This reflects India’s Gross Domestic Product (GDP) growth since the turn of the century, which ranks as one of the fastest in the world economy.
According to International Monetary Fund (IMF) estimates, India’s GDP grew rapidly between 2002 and 2007, and then stunted a bit in 2008, in stride with the global economic crisis of that year, but was back on a strong growth rate after 2010.
In 2018, Nifty gave a return of around 3.5%.
Now, let me give you the snapshot of the past crashes of the Nifty and how strongly it came back since then.
Following are some of the notable single day falls of the Index since its introduction.
|1||October 28, 1997||8%||Investors deserted emerging Asian shares during the Asian Financial Market Crisis.|
|2||January 21, 2008||10%||Due to the crisis of US Subprime Mortgage.|
|3||August 16, 2013||234.4 Points||Due to the depreciation of the Indian Rupee against US Dollar|
|4||August 24, 2015||490.9 Points||Due to the meltdown in the Chinese Stock market.|
|5||June 24, 2016||181.5 Points||Due to the Brexit Referendum.|
|6||November 11, 2016||229.4 Points||Driven by the Demonetization move by the Indian Government and the US Election Results of 2016|
|7||February 2, 2018||256.3 Points||Driven by the 2018 Union budget of India and Global breakdown.|
|8||September 24, 2018||175.5 Points||Panic Fall, wherein in the last trading session (i.e., September 21, 2018) there were rumors of Fraud by Housing Loan companies in India|
|9||October 4, 2018||303.2 Points||Panic Fall, due to Oil price rises and rupee fall against US Dollar.|
|10||October 5, 2018||282.8 Points||Panic Fall, due to Oil price rises and rupee fall against US Dollar.|
From all the above corrections in the history of Nifty, only one thing is common. No matter how deep Nifty nosedives, history always favors the bull market over the longer run.
What Nifty really is?
Nifty or Nifty 50 is the index of the stock market for the National Stock Exchange (NSE). It stands for National Stock Exchange Fifty.
The NSE, like BSE, is another stock exchange which operates in India. NSE came into existence in the year 1991 on the recommendation of the Pherwani Committee.
The index has 50 largest and most actively traded stocks on the NSE that covers around 22 sectors of the Indian economy and is one of the two main stock indices used in India market, the other being the Sensex.
The index is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and Credit Rating and Information Services of India Ltd. (CRISIL).
Sensex vs Nifty Difference
The main difference between Sensex and Nifty is that Sensex is the stock market index for BSE Limited, while Nifty is the stock market index for NSE.
Apart from this, Sensex is comprised of 30 company stocks, while Nifty is comprised of 50 company stocks.
List of Nifty 50 companies (October 2018)
|1||Adani Ports & SEZ Limited|
|2||Asian Paints Ltd|
|8||Bharti Infratel Ltd.|
|12||Dr. Reddy’s Laboratories|
|24||Indiabulls Housing Finance|
|30||Kotak Mahindra Bank|
|31||Larsen & Toubro|
|32||Mahindra & Mahindra|
|36||PowerGrid Corporation of India|
|38||State Bank of India|
|40||Tata Consultancy Services|
|46||United Phosphorus Limited|
|50||Zee Entertainment Enterprises|
How is Nifty points calculated?
The Nifty index is a free float market capitalization weighted index. The index was initially calculated on full market capitalization methodology. But from June 26, 2009, the computation was changed to free float methodology.
The base period for this index is November 3, 1995, which marked the completion of one year of operations of NSE Equity Market Segment. The base value of the index has been set at 1000 points and a base capital of ₹2.06 trillion.
The free-float methodology takes into account the proportion of the stocks that can be readily traded in the market. This does not include the ones held by shareholders, promoters or other locked-in shares not available in the market.
First, the market capitalization of the company is taken into account. This is done by multiplying all the shares issued by the company with the market price of its stock.
Then Nifty determines a Free-float factor that is a multiple of the market capitalization of the company which helps in determining the free-float market capitalization based on the details submitted by the company.
And then, ratio and proportion are used based on the base index of 1000 points. This helps to determine the Nifty points.
There are a lot of factors you should take into consideration before selecting a stock of a company that matches your investment goal.
In short, this index is also an indicator of the Indian economy. Inflation, recession, RBI policies, government initiatives and the global economy all affect the index.
2018 turned out to be a both good and bad year for stock market investors.
But for long term investors, a year of low returns would bring in a lot of opportunities if they are observant enough to see what the future holds.
As for 2019, there is no point in predicting what will happen, but it will be an interesting year.
Disclaimer: the views expressed here are of the author and not of Groww.