Nifty is an index that comprises top-performing 50 different companies from all the major sectors in the Indian market. It is the benchmark index of the National Stock Index (NSE). In this post, we will learn what Nifty is, eligibility to be a member of Nifty 50, and what does its movement signifies.
What is Nifty 50?
Nifty was launched on 21st April 1996. It comprises 50 leading companies trading actively in the index. These companies are chosen based on free-float market capitalization. It comprises almost 65% of the market capitalization of all stocks listed on NSE. It represents almost all the major sectors of the Indian economy.
It is widely accepted in the market, and so has a very high trade volume. It represents the overall trend of the Indian stock market. It can be used for many purposes, like comparing the return of major mutual funds, exchange-traded funds (ETFs), and other asset classes.
Eligibility to be a member of Nifty 50
Not every company can be a part of Nifty 50; some special requirements need to be fulfilled.
- Liquidity: Liquidity refers to the trade volume of the stock. If a stock has high liquidity, it means you can buy a large number of shares of that stock without much affecting the price. For a stock to be listed in the Nifty 50, it should have its impact cost in and around 0.50%.
- Float adjustments: As already discussed, free-float market capitalization is used to determine which companies will be a part of Nifty 50. Market capitalization means the product of the price of one share of the company and the number of shares available in the market. The float-adjusted market capitalization of a particular company should be 1.5 times the average free-float market capitalization of the smallest index component.
- Trading frequency: The trading frequency of the stock should be 100% in the last 6 months.
- Listing history: The company should be listed in the stock market at least 6 months before its inclusion in the Nifty 50.
- Finally, the company should be allowed to trade in the futures and options segment.
What does Nifty 50 movement signify?
Nifty 50 works as an indicator for the entire market. Here is what you can conclude from the Nifty movement.
- If Nifty goes up, it means most of the stocks in the National Stock Exchange (NSE) went up.
- If Nifty goes down, it means most of the stocks in the National Stock Exchange (NSE) went down.
- The movement of Nifty over a period of time reflects the economic health of the country. If it keeps going down, it means the country is in the grip of depression.
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