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What is Nifty 50? Basics of Nifty explained

Nifty is a combination of two terms, the National Stock Exchange (NSE) and fifty. Nifty comprises the top performing 50 equity stocks actively trading on NSE. Introduced by the NSE in 1996, Nifty is one of the popular benchmark indices of the Indian stock market to invest. Since 50 stocks are included in the Nifty index, it is also known as Nifty 50. 

Nifty: A brief history

There are two major stock exchanges in India – the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Sensex is an index that is an indicator of the performance of the BSE, while Nifty 50 indicates the performance of the NSE.

NSE, established in 1992, was the first electronic exchange in India that offered a fully automated screen-based electronic trading system. NSE Indices Limited (formerly known as India Index Services & Products Limited) manages and owns Nifty 50. NSE Indices is a specialised subsidiary of the NSE, focused upon the index as a core product.

Some key aspects related to Nifty 50 are:

  • While the Sensex comprises 30 stocks, Nifty has 50 stocks under its umbrella.
  • 1995 is the base year for Nifty and the base value is 1,000.
  • Nifty 50 companies are from 13 different sectors of the Indian economy; they are the top stocks in the market.

Why is Nifty important?

A market index reflects the performance of stocks and helps you make decisions about your investments in the stock market. Given below are a few aspects that highlight the importance of Nifty.

  • Nifty 50 stocks include companies from various sectors, such as financial services, information technology, telecommunications, energy, etc., which makes it a comprehensive and diversified index.
  • It is used for various purposes such as benchmarking index funds, fund portfolios, and index-based derivatives.
  • It represents about 66.8% of the free-float market capitalisation (the company value is calculated by excluding shares held by the promoters) of the stocks listed on NSE as of March 29, 2019.
  • The total traded value of Nifty 50 constitutes 53.4% of the traded value of all stocks on the NSE, for six months ending March 2019.
  • Nifty is very useful for derivatives trading.

How can the Nifty 50 index help you?

  • Nifty can help you understand the performance of the stock market today and plan your investments accordingly. It indicates whether the stocks are doing well and if they will provide good returns in the future.
  • Nifty helps pick which stocks to buy, as it includes only those companies that perform outstandingly well in the market.
  • It can help you earn good returns in the long run. The base year for Nifty 50 is 1996. If you had Rs. 1,000 in 1996 it would be worth Rs. 17,945.95 on 11th October 2021, which was the Nifty share price for that day.

Conclusion

The Nifty 50 can help you in choosing which stocks to invest in and manage your portfolio. However, if you want some expert advice on which stocks to invest in and design your portfolio, you can consult a financial advisor to help you in your investment journey.