What is nifty

01 August, 2023

Whether you are an active stock market enthusiast or not, you must have heard the term 'NIFTY'. So, What is NIFTY? What is NIFTY's full form? What is NIFTY 50? What is the current NIFTY rate? Let's find answers to all these questions and many more in this article.

What is NIFTY?

NIFTY is a national market index that was introduced by the National Stock Exchange, one of the biggest and oldest stock exchanges in India. The term NIFTY stands for National FIFTY, a term that was coined by the exchange in April 1996. However, in 2015, it was renamed to NIFTY 50.

Now, let's understand, what this NIFTY 50 does. Nifty 50 is a diversified market capitalisation-weighted index of India's top 50 companies listed on the NSE. It represents the overall economic conditions of the Indian market via the included 50 stocks spanned over 13 sectors. These sectors are automobile, banking, cement, construction, consumer goods, energy, financial services, IT, infrastructure, media and entertainment, metals, pharmaceuticals and telecommunication.

It is one of the most widely used leading indicators by investors who are engaged in online stock trading to monitor the stock market's performance. It indicates how the stock market is faring currently. Thus, being a part of the NIFTY 50 index or being called a NIFTY stock is a big thing for any stock as it is a part of the index that indicates the overall economic conditions in the country.

There are more than 350 different market indices under the NIFTY India brand, such as Bank NIFTY, NIFTY 100, NIFTY 500, NIFTY FMCG, and Fin NIFTY.

Top constituents of NIFTY 50 by weightage

Eligibility criteria for NIFTY index listing

For a company to be a part of Nifty 50, there are certain eligibility criteria that they must have to meet. These include :

1. Domicile
   
   The company must be domiciled in India and traded at the National Stock Exchange (NSE). The definition of traded stocks includes stocks that are both listed as well as traded and also the ones which are not listed but are allowed to be traded on the NSE.
   
   

2. Type of securities
   
   Only the stocks of those companies which are already included in the Nifty 100 index and can be traded in the NSE’s Futures & Options (F&O) segment can become a part of the Nifty 50 Index.
   
   

3. Differential voting rights (DVR)
   
   Only those equity shares with differential voting rights can be included in NIFTY 50, whose DVR free float is at least 10% of the company's free-float market capitalisation and 100% of the free-float market capitalisation of the last security in the index.
   
   

4. Liquidity
   
   To be included in the index, the stock must have been transacted at a maximum average cost of 0.50% in the last six months for 90% of the observations if the portfolio is worth ₹10 crore. Impact cost is the cost of performing a business in an asset in ratio to its benchmark weight at any given time, as measured by market capitalisation. When buying or selling, this is the percentage markup.
   
   

5. Float-adjusted market capitalisation
   
   If we compare the freely floating assets of market capitalisation to that of the smallest company of the Index, it should be, at the very minimum, 1.5 times more for the stock to become a part of the Nifty 50 index.
   
   

6. Listing history
   
   An initial public offering (IPO) is eligible for inclusion if it must meet the index's regular qualifying criteria for float-adjusted market capitalisation and impact for a minimum three-month period instead of six months.
   
   

7. Trading frequency
   
   For a stock to get included in the Nifty 50 index, it must have achieved a 100% trading frequency in the last six months, which means that it must have been traded every day in the last six months.
   
   

Indian markets have various indices that help investors and portfolio managers in benchmarking and launching new financial products. The NIFTY 50 Index is one such index and you must keep track of it if you are interested in the stock market or the country's economy in general.

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