Complete Guide to NIFTY 50 Index: Selection to Investment Process

Whether you are an investor or trader, or not, you must have heard Nifty 50 at least a few times in your lifetime even if you watch or read news infrequently, isn’t it? Nifty 50 index is undoubtedly one of the most discussed terms in the stock market but what exactly it does, how this index is developed, and how can one invest in it, are some of the most common questions that many ask. If you want to invest in Nifty 50, then this article will help you understand how it works, its constituents, the selection process for the index, calculation, and more. 

NIFTY 50 Index – Overview & Constituents 

Nifty 50 is a well-diversified index of 50 equity stocks from 13 different sectors. The top stocks from the sectors are being picked to understand how the overall market is performing. The main purpose of Nifty 50 is to act as a benchmark for investors, fund houses, portfolio management services, index funds, and index-based derivatives. NSE Indices Limited owns and manages the Nifty 50 index. 

Interesting facts about Nifty 50

• Out of the stocks listed on the NSE, Nifty 50 represents 54% of the free float market capitalization of those stocks as of 30 September 2024. 
• In six months ended on 30 September 2024, the total traded value of the index’s constituents accounted for 27% of the total traded value of all the stocks listed on NSE. 

The constituents of the Nifty 50 index are as follows – (As of 3 December 2024)

Adani Enterprises Ltd.	IndusInd Bank Ltd.
Adani Ports and Special Economic Zone Ltd.	Infosys Ltd.
Apollo Hospitals Enterprise Ltd.	JSW Steel Ltd.
Asian Paints Ltd.	Kotak Mahindra Bank Ltd.
Axis Bank Ltd.	Larsen & Toubro Ltd.
Bajaj Auto Ltd.	Mahindra & Mahindra Ltd.
Bajaj Finance Ltd.	Maruti Suzuki India Ltd.
Bajaj Finserv Ltd.	NTPC Ltd.
Bharat Electronics Ltd.	Nestle India Ltd.
Bharat Petroleum Corporation Ltd.	Oil & Natural Gas Corporation Ltd.
Bharti Airtel Ltd.	Power Grid Corporation of India Ltd.
Britannia Industries Ltd.	Reliance Industries Ltd.
Cipla Ltd.	SBI Life Insurance Company Ltd.
Coal India Ltd.	Shriram Finance Ltd.
Dr. Reddy’s Laboratories Ltd.	State Bank of India
Eicher Motors Ltd.	Sun Pharmaceutical Industries Ltd.
Grasim Industries Ltd.	Tata Consultancy Services Ltd.
HCL Technologies Ltd.	Tata Consumer Products Ltd.
HDFC Bank Ltd.	Tata Motors Ltd.
HDFC Life Insurance Company Ltd.	Tata Steel Ltd.
Hero MotoCorp Ltd.	Tech Mahindra Ltd.
Hindalco Industries Ltd.	Titan Company Ltd.
Hindustan Unilever Ltd.	Trent Ltd.
ICICI Bank Ltd.	UltraTech Cement Ltd.
ITC Ltd.	Wipro Ltd.

The top sectors by weightage – 

1. Financial Services: 34.53%
2. Information Technology: 13.76%
3. Oil, Gas & Consumable Fuels: 10.41%
4. Fast Moving Consumer Goods: 8.00%
5. Automobile and Auto Components: 7.44%

The top ten stocks by weightage – 

1. HDFC Bank Ltd.: 12.58%
2. ICICI Bank Ltd.: 8.46%
3. Reliance Industries Ltd.: 8.09%
4. Infosys Ltd.: 6.17%
5. ITC Ltd.: 4.10%
6. Larsen & Toubro Ltd.: 4.05%
7. Tata Consultancy Services Ltd.: 4.03%
8. Bharti Airtel Ltd.: 4.03%
9. Axis Bank Ltd.: 2.99%
10. State Bank of India: 2.98%

Selection Criteria

The stock selection criteria for the most popular equity index Nifty 50 include – 

• Market impact cost: The first criterion for a stock to be selected for inclusion in the Nifty 50 index is its market impact cost. In the six months preceding the date of rebalancing of the index, the stock must have traded at an average impact cost of 0.50% or lower. This should have happened for at least 90% of the observations where the basket size has to be ₹ 100 million. 
• Eligible for F&O segment: Companies’ stocks, which are eligible to trade in the futures and options segment, are only eligible to be selected in the Nifty 50 index. 
• On the cut-off or date of rebalancing of the index, the nifty stock must have been listed for a month or more. 

The Nifty 50 index is rebalanced every six months or on a semi-annual basis, where the cut-off dates are usually 31 January and 31 July of a calendar year. 

Factors Affecting the NIFTY 50 Index

It is crucial to understand what factors affect the Nifty 50 index as the same factors will affect not only the constituent stocks but also the overall market condition as Nifty 50 represents the entire equity market in the economy. 

• Global and Domestic market sentiment: The stocks in the nifty 50 indices are affected, and the nifty 50 price gets affected as well. Domestic as well as global cues affect the stock pricing, which in turn affects the index pricing. If the global market is sluggish, it can affect the nifty index and when the global market gives positive cues, the index can rise. It is the same with the domestic market sentiment as well. 
• Financial reports: When the constituent companies of the nifty index announce their financial returns, the index moves fast as the stock prices of the constituent stocks move significantly. If the financials of the constituting companies are positive, and as per anticipation or exceeded them, then the index might move up, while if the returns are not as good as they thought to be, or the constituting companies suffered loss during any quarter, or in a financial year, then the stock can drag the index down. 
• Corporate announcements: If the companies, which form the nifty 50 get some new orders, or crack some deal, or anything positive comes the way, the corporate announcement can boost the market sentiment, and the stock prices of those companies can move up taking the index higher. However, if something negative is announced, then the stock price of the constituent company may drag the index down as well. 
• Monetary Policies: Repo Rates by RBI and the NIFTY 50 index are highly correlated. When the repo rate goes up in an economy, the loans become expensive, which leads to a decline in business activity, and thus the stock prices decrease taking the nifty index down, while rate cuts boost the business activity and thus market sentiment, which takes the index up. However, it depends on other factors as well like inflation and other economic factors. 
• Corporate Activities: If the constituent companies announce dividends, bonus issues, and similar activities, then stock prices usually go up as the investors get excited, which boosts the index as well. 

NIFTY 50 Index Calculation Method

Nifty 50 index value is calculated using the free-float market capitalization method. 

• The current market price of the 50 stocks of the index is multiplied by the number of free-float shares, which excludes shares held by promoters, government, trusts, etc. This results in the weighted market cap of the stocks.  
• Then weighted market capitalization of all 50 stocks is taken into account and summed up. 
• Then the result is divided by the base period market capitalisation to derive the index value. 

Nifty 50 Index Value = (Current Market Cap or Weighted Market Cap/ Base Market Cap) *1000

Performance and Returns

Nifty 50 has been performing consistently well and in past years, it has jumped multiple times, however, also major corrections happened which need to be considered. The price returns of the index for the following period are as follows – 

YTD: 11.04%

1 Year:  19.86%

5 Year: 14.89%

Since inception: 11.56%

QTD: -6.51%

The total return offered by the index for the same periods – 

YTD: 12.35%

1 Year:  21.27%

5 Year: 16.22%

QTD: -6.36%

Enjoy investing in the top stocks of the Nifty universe with the NIFTY 50 index on Shoonya App!

Risk and Volatility

Since Nifty 50 invests in large-cap stocks mostly, the risk and volatility factors are comparatively lower however, it is present and needs to be considered when someone wants to invest in the index via ETFs, or index funds in its constituent stocks. 

The standard deviation of the index for 1 year stands at 14.01 while that for 5 years stands at 19.03 and since inception, it is as high as 22.85. This indicates how volatile the index is and can move in either direction with a huge range. 

This makes the net total returns of the index or risk-adjusted returns of the index stand at – 

YTD: 10.84%

1 Year:  19.63%

5 Year: 15.54%

QTD: -7.33%

How to Invest in the NIFTY 50 INDEX?

You can invest in the Bank Nifty index using ETFs, or index funds, or you can trade them on the trading platform. You can also trade Bank Nifty futures, and options in the F&O section of Shoonya’s app. To do so, you have to add the index to your watchlist following these steps – 

• Open the Shoonya app.
• Head to the “Watchlist” tab located at the bottom of your screen.
• In the search bar, type “NIFTY IN” or “SENSEX IN” and add it to the watch list, and then you will be able to see the indices.
• Once you find your desired index, click on the add option given on the right side.
• Now you can see the index on the watchlist. 

Top ETFs of Nifty 50

Nifty 50 is used as a benchmark for multiple index funds, ETFs, and here are some of the popular ones according to 1-year return– 

1. Motilal Oswal Nifty 50 Index Fund – Direct-Growth: 20.79%
2. Franklin India NSE Nifty 50 Index Fund –Direct Plan-Growth: 20.76%
3. DSP Nifty 50 Index Fund – Direct-Growth: 20.75%
4. UTI Nifty 50 Index Fund – Direct-Growth: 20.74%
5. Aditya Birla Sun Life Nifty 50 Index Fund – Direct-Growth: 20.74%

Conclusion

The nifty 50 index is one of the two most popular indices in the Indian stock market. This index not only indicates the overall market condition but also helps many market participants keep track of their investments. On top of that, you can invest in Nifty 50 with a few easy steps and enjoy a well-diversified portfolio. 

FAQs| NIFTY 50 Index

Source: MoneyControl

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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.