Nifty 50 : Vital Statistics
Nifty 50 : Sector allocation
About the Nifty 50 index
The NIFTY 50 is a diversified 50 stock index that represent key sectors of the economy. This index tracks the performance of the 50 large bluechip companies traded in the NSE based on free-float market capitalisation. These stocks are also the most liquid securities and together account for over two-thirds of the free-float market cap of traded securities in Indian exchanges.
The Nifty 50 is a market cap-based index, like many of the top global indices. What this means is that only the top stocks in terms of market cap remain in the index. Those that fall below the 50 get eliminated from the index and those that move up get added to the index. The weight given to each stock is based on the free-float market cap size it commands.
As a bellwether index, the Nifty 50 is used as a benchmark for local and global managed portfolios, index-based derivatives and has passive products such as ETFs and index funds that track it.
NIFTY 50 is computed in four currencies namely Indian Rupee (INR), US Dollar (USD), Australian Dollar (AUD) and Canadian Dollar (CAD).
The NSE also has futures contracts and options based on the Nifty 50. Besides, there are also derivative instruments linked to Nifty 50 that are traded at the Singapore Exchange (SGX), which is also a closely watched indicator in Indian markets.
Frequency of review of Nifty 50 index
Like all other Nifty-based indices, the Nifty 50 is reconstituted semi-annually in March and September. According to material available on the NSE on the Nifty 50 index methodology, the index review frequency is as follows:
(reproduced from the above website’s content)
“The review of NIFTY 50 is undertaken semi-annually based on data for six months ending January and July. The replacement of stocks in NIFTY 50 (if any) is generally implemented from the first working day after F&O expiry of March and September. In case of any replacement in the index, a four weeks’ prior notice is given to the market participants.
Additional index reconstitution may be undertaken in case any of the index constituents undergoes a scheme of arrangement for corporate events such as merger, spin-off, compulsory delisting or suspension etc. The equity shareholders’ approval to a scheme of arrangement is considered as a trigger to initiate the exclusion of such stock from the index through additional index reconstitution”.
Which stocks are eligible for the Nifty 50 index?
If a stock is part of the Nifty 100 index and is available for trading under the derivatives segment of NSE, it becomes eligible to be added to the Nifty 50. But there are other criteria that will be considered before a stock can be included in the Nifty 50. They are:
- The stock should have traded 100% of the times in the past 6 months, whenever the index is reviewed.
- The stock should have an average impact cost of 0.5% (while trading) or less during the past 6 months, 90% of the times. This is considered for a portfolio of Rs 10 crore. Impact cost for this purpose is the cost of executing a transaction in a stock in line with its index weight, (which is measured by marketcap).
- The stock should have an average free float market capitalisation of at least 1.5 times the average free float market capitalisation of the smallest constituent in the Nifty 100 index.
- Stocks with differential voting rights (DVR) are eligible for inclusion in the index subject to fulfilment of specified DVR related criteria.
Nifty 50 returns and Nifty 50 total returns index
The dividends of the stocks in the Nifty 50 are assumed to be reinvested in the index after the close of the ex-date. Such an index is called the Total Returns index. The Nifty 50 has a TRI version also available and the same is used as a benchmark for several mutual funds.
The total returns index therefore has a higher return than the Nifty 50 when considered for any period of time.
Nifty 50 index updation/adjustments
Apart from the half-yearly rebalancing, the Nifty 50 index needs to be maintained and adjusted for dividends, stock splits, corporate actions and other scheme of arrangements such as merger, demerger and so on.
The following is reproduced from NSE on how key corporate actions are adjusted in the index.