If you are the person that is regularly dealing in the stock market then you might be aware of the term Nifty. It is the market index that is introduced by the National Stock exchange on April 21, 1996. The concept of this index is a little different from the BSE Sensex. But the movement of both these indexes has a great impact on the Indian stock market.
Nifty shows the equity stocks of the top 50 companies of the NSE. These sticks can be from different sectors of the Indian economy like Information technology, financial services, metals, cement, pharmaceuticals, automobiles, pesticides and fertilizers, energy, entertainment, and media, etc. It is the second most commonly used index after Sensex. It is owned by the India Index Services and products that is a fully owned subsidiary of the National Stock Exchange. The Nifty follows the trends of the blue-chip companies that are mostly the largest Indian securities. It also has host indices like Nifty 50, NIFTY Bank, NIFTY next 50, NIFTY IT, etc and has some part that deals with futures and options.
There are Certain Criteria that are to be Followed for a NIFTY Index
- The company must be the domicile of India and must be registered with NSE.
- The stocks possessed by the company should be highly liquid which will further help in measuring the cost of the security transaction.
- The company must be trading in the frequency of 100% from the last six months of duration.
- The average free float of the market capitalization should be 1.5 times higher than the small constituents in the index.
- Shares with Differential Voting rights are also eligible for the index.
The performance of the companies is seen from the last six months. And all the criteria are matched to enter the company in the list of top 50. There can be additions or eliminations done according to the situation. To calculate Nifty, there is the requirement of the information regarding the free-float adjusted and market capitalization weight method. Both these things are calculated for the 50 companies. To calculate Nifty the following formula is used:
Index value = Current market value/ (base market capital*1000)
The results found will act as the benchmark against all the equity shares in the market. It is very important to ensure their stability to keep things constant in the Indian Market.
So it is very important for the person who wants to start their trading in the online stock market to have full knowledge about the concept of the main indices like Sensex and Nifty. These are the two things that will show the overall condition of the Indian stock market. To start this overall process, it is important to open the Demat account. Open a 5paisa Demat account that will provide you with all the basic information and even will make the dealing more seamless and fast. Online stock trading is a great way to use surplus money and invest in places that can yield high returns in the future.