NIFTY

What is NIFTY?

NIFTY is a market index introduced by the National Stock Exchange. It is a blended word – National Stock Exchange and Fifty coined by NSE on 21st April 1996. NIFTY 50 is a benchmark based index and also the flagship of NSE, which showcases the top 50 equity stocks traded in the stock exchange out of a total of 1600 stocks.

These stocks span across 12 sectors of the Indian economy which include – information technology, financial services, consumer goods, entertainment and media, financial services, metals, pharmaceuticals, telecommunications, cement and its products, automobiles, pesticides and fertilizers, energy, and other services.

NIFTY is one of the two national indices, the other being SENSEX, a product of the Bombay Stock Exchange. It is owned by the India Index Services and Products (IISL), which is a fully-owned subsidiary of the National Stock Exchange Strategic Investment Corporation Limited.

NIFTY 50 follows the trends and patterns of blue-chip companies, i.e. the most liquid and largest Indian securities.

NIFTY contains a host of indices – NIFTY 50, NIFTY IT, NIFTY Bank, and NIFTY Next 50; and is a part of the Futures and Options (F&O) segment of NSE which deals in derivatives.

Eligibility Criteria for NIFTY Index Listing?

The eligibility criteria for getting listed on the NIFTY Index are mentioned below –

  • The company must be a domicile of India and registered with the National Stock Exchange.
  • Stocks must possess high liquidity, which is measured by their average impact cost. It is the cost of security transaction execution in relation to the index weight as reckoned through market capitalisation. It should be 0.50% or lower than that for a period of 6 months while 90% of the observations are made on a portfolio of Rs. 10 Crore.
  • The company should have a trading frequency of 100% during the previous six months.
  • It should have an average free-floating market capitalisation, which is 1.5 times higher than the smallest constituent in the index.
  • Shares which have Differential Voting Rights or DVR are also eligible for the index.

The NIFTY Index is reconstituted every six months and considers the performance of a stock over such period. Depending on this performance, and given that a company and its stock fulfils all the eligibility criteria mentioned above, the list might include or eliminate new/old stocks respectively. In case any new additions and eliminations are done, the companies in question are informed through a notice four weeks before reconstitution.

Apart from a periodical routine, reconstitution can also be undertaken in case a company goes through a scheme of arrangements for events involving suspension, spin-off, merger and compulsory delisting.

Other than these, NIFTY share market is supposed to conduct a quarterly screening of companies to check their adherence to portfolio concentration regulations for Index Funds and ETFs as per SEBI mandate as announced on 10th January 2019.

Top Companies Listed under NIFTY?

The following table demonstrates some of the companies listed under NIFTY 50 in the semi-annual period from July – December 2019.

Company Name LTP Sectors  Trend for the Past 1 Year
YES Bank 47.40 Banking -20.33%
Ibull Housing Fin 197.95 Financial Services 0.04%
Tata Motors 139.50 Automobile 11.785
Eicher Motors 20491.85 Automobile 40.76%
IndusInd Bank 1340.10 Banking -41.77%
SBI 265.45 Banking and Financial Services -27.825
Bajaj Auto 3111.50 Automobiles 18.35%
Asian Paints 1812.30 Consumer goods 86.32%
Tata Steel 356.10 Metals 13.96%
Coal India Ltd. 199.40 Energy and Mining 39.08%

How is NIFTY for Share Market Calculated?

The NIFTY share index is managed by a team of professionals at the NSE Indices Limited. It formed an Index Advisory Committee that offers its expertise and guidance on large-scale issues pertinent to equity indices.

NIFTY 50 indices are computed based on a float-adjusted and market capitalisation weighted method. In this method, the level of index demonstrates the aggregate market value of stocks present in the index in a specific base period. Such a base period for a NIFTY 50 index is 3rd November 1995 where the base value of the index is considered 1000 and its base capital stands at Rs. 2.06 Trillion.

The formula for calculating price index is listed below –

Index value = Current MV or market value / (Base Market Capital * 1000)

The methodology involved in the calculation of indices also considers changes in corporate actions, which for instance comprise of rights issuance, stock splits, etc.

The NIFTY share market index is a benchmark standard against which all equity markets in India are measured. Therefore, NSE conducts regular index maintenance to ensure that it remains stable and persists as the benchmark in the Indian stock market context.

Major Milestones of NIFTY?

The following demonstrates some of the major events and achievements in the history of NSE since NIFTY’s inception.

Years Significant Events
1996 – 2000
  1. Started trading in dematerialised securities on NSE exchange.
  2. Launched index futures, which was based on the index of NIFTY 50.
  3. Index futures were listed on the Singapore Exchange.
  4. Started internet trading.
2001 – 10
  1. Based on the NIFTY stock market index, index options were introduced.
  2. Introduction of single stock F&Os or futures and options on the index of listed securities.
  3. Introduced ETF listings.
  4. Introduced NIFTY Bank index derivatives.
2010 – 20
  1. Began index futures and options trading on global indices, i.e. Dow and Jones Industrial Average and S&P 500.
  2. Began index F&O contracts on the index of FTSE 100.
  3. Began NIFTY 50 trading on the Osaka Exchange.
  4. Introduced the trading of NIFTY 50 index futures on TAIFEX.

Here is a list of notable highs and the events pertinent to those in the NIFTY share index.

Date High points Related Events
20th May 2019 421.10 2019 General Elections exit polls.
23rd May 2019 300.9 General Elections 2019 results.
8th August 2019 176.95 Rollback of FPI surcharge.
26th August 2019 234.45 US-China relief measures in the form of trade talks.
20th September 2019 655.45 Budget announcement, which stipulated a reduction in corporate tax from 40% to 30% for start-up manufacturing companies and domestic companies.
23rd September 2019 420.65 Repercussions of reduction in corporate tax.

Here is a list of notable lows and relevant events in the NIFTY stock market index.

Date  Low points Related Events
16th August 2013 234.4 points Indian Rupee Depreciation.
24th June 2016 181.5 points Brexit referendum.
24th August 2016 490.9 points Chinese Stock Market meltdown.
11th November 2016 229.45 points Demonetisation and the US Election Results.
4th October 2018 303.2 points Increase in oil prices and fall of rupee value against USD.
8th July 2019 252.55 points Union Budget for Financial Year 2019 – 20.

Broad indices such as NIFTY and Sensex are used as a benchmark for Mutual Funds to measure their performance. The former is the broader of the two indices, thus offering a much more comprehensive standard of the Indian financial market. NIFTY clocked the highest closing levels on 17th October 2019 with auto, banking, metal and energy leading the rise.