Nifty is the indices, that represent the group of companies, that are average to come down to one number. If the Nifty goes up, it signifies that most of the companies in the indices have gone up. Nifty is the index of NSE.
Nifty50: It’s an average of 50 top stocks from 24 sectors.
Nifty has various sector indices as well which are as follows:-
Bank Nifty: It’s an average of 12 banking stocks.
Nifty Auto: It’s an average of 16 auto sector stocks.
Nifty Energy: It’s an average of 10 Energy sector stocks.
Nifty Financial Services: It’s an average of 15 stocks from fiancé sectors like Bajaj finserv, LIC housing finance etc.
Nifty FMCG: It includes 15 FMCG stocks like Britannia, ITC, Marico and 12 more such stocks.
Nifty IT: 10 It companies are included in this indices to get an average number.
Nifty Media: 15 media companies like Hathway, Network18, Dish Tv and 12 more companies are included to get an average number to compute Nifty Media.
Nifty Metal: Metal companies such as Hind Zinc, Hind copper are included to compute metal nifty indices.
Nifty Pharma: To judge the sentiment of the pharma sector, top 10 pharma companies like Sunpharma, Cadila and more 8 companies are included to compute Nifty Pharma.
Nifty PSU Bank: It includes 12 public sector bank like PN, SBI, Union Bank etc.
Nifty Realty: It has companies from the real estate sector such as DLF, Prestige, Unitech etc.
Nifty Private Bank: Just like PSU bank, it comprises of large private sector banks.
How Nifty is calculated?
Nifty is based on market capitalisation, it basically a market capitalization weighted index. It involves total market capitalization of company weighted by its effect over the index. So, the firm with higher market capitalisation will make more difference to the index as compared to a smaller market cap company.
One must know a few things before calculation of Nifty50:-
- 1995 is taken as base year
- Base Value is 1000
- Nifty50 takes into consideration 50 stocks of 24 various sectors that are actively traded in the market
Let’s understand the calculation
- Market Capitalization = Shares outstanding * Market Price Per Share
- Free Float Market Capitalization = Shares outstanding * Price * IWF (Investible Weight Factor)
- Index Value = Current Market Value / Base Market Capital * Base Index Value (1000)
Nifty comprises of 3 stocks A, B and C
Assume A has 1,000 shares. Promoters hold 200 and the rest 800 are available for active trading and hence are free-floating. B has 2,000 shares. Its promoters hold 1000. Rest 1000 are free-floating C has 3000 shares, its promoters hold 1500 shares and 1500 are available for active trading.
Say price of A is Rs.10 and that of B is Rs.20, Price of C is 35
A’s total market capitalization = 1,000 x Rs.10 = Rs.10,000
Free-float market cap = 800 x Rs.10 = Rs.8,000.
B’s total market cap = 2,000 x Rs.20 = Rs.40,000.
B’s free-float market cap = 1000 x Rs.20 = Rs.20,000
C’s total market cap = 3000 x Rs.35 = Rs.105,000
C’s free-float market cap = 1500 x Rs.35 = Rs.52500
Total free float market cap of A,B &C = Rs.(8,000+20,000+52500)= Rs.80,500
Assume Market Cap during 1995 was Rs.5,000
Then, NIFTY = 80500*1000/5,000 = 16,100