What is Nifty 50?
One of the two main stock indices used in India, the Nifty 50 is India’s benchmark stock market index for their equity market. It represents a well-diversified, weighted average of 50 of the most profitable Indian company stocks within 12 sectors. Nifty 50 was established on the April 21st, 1996 and is comprised of many stock indices of Nifty. This index is owned and managed by India Index Services and Products (IISL).
From 2008 to 2012, the Nifty 50 Index share of overall stock market capitalization fell dramatically (from 65% to 29%) mainly due to the rise of other sectoral indices.
Index Composition and Calculation
The Nifty 50 is a free-float capitalisation-weighted index. This changed in June 2009, when up until then the index was calculated on full market capitalization methodology. The base value of the Nifty 50 has been set at 1000 and a base capital of Rs 2.06 trillion. The NIFTY 50 price is calculated using the free-float market capitalisation-weighted method, where the price level of the index indicates the total market value of all components relative to the base value on November 3, 1995.
Index Value = Current Market Value / Base Market Capital x Base Index Value (1000)
| Name of Company | Industry | Weight (%) |
|---|---|---|
| HDFC Bank Ltd | Banking & Financial Services | 9.60 |
| Reliance Industries Ltd. | Oil & Gas Trading | 7.77 |
| Housing Development Finance Corporation | Banking & Financial Services | 6.79 |
| ITC Ltd. | Consumer Goods | 5.55 |
| ICICI Bank Ltd | Banking & Financial Services | 5.01 |
| Infosys Ltd | Information Technology | 4.96 |
| Larsen & Toubro Ltd | Infrastructure | 3.81 |
| Kotak Mahindra Bank Ltd | Banking & Financial Services | 3.39 |
| Tata Consultancy Services Ltd | Information Technology | 3.33 |
| State Bank of India | Banking & Financial Services | 3.02 |
| Sector | Weight (%) |
|---|---|
| Financial Services | 35.73 |
| Energy | 15.19 |
| IT | 11.20 |
| Automobile | 10.32 |
| Consumer Goods | 9.17 |
The Factors Influencing Overall Index Price of the Nifty
There are many internal (countrywide) and external (sectional economic shifts) factors that influence the NIFTY 50 price. The stability of the government is a major player in the trajectory of the NIFTY. Elected presidents and changes within parliament have, in the past, sent the index yo-yoing to record highs and lows, with stability coming months after. Changes in RBI repo rates in the past also sent the markets into a spiral.
The financial sector accounts for almost 30% of the index’s composition. This is why, during times of recession or economic booms, market upheavals often occur. For example, the recession of 2008, which was responsible for more than a 10% loss in the Industry Production Index (IIP), the overall view of Industrial growth. IIP took a nose-dive when the Chinese Industry Production Index boomed in 2015, and the NIFTY experienced a bearish market and fell to 490.9 points.
The Performance of the international markets (such as international news) directly impacts the highs and lows of the global stock markets. As there is a constant correlation between worldwide stock indices, the NIFTY also reacts when another stock index behaves in a certain way, thus, making these the biggest economic reflectors. For example, when the S&P (the agency issuing the S&P 500 – an index comprised of 500 large companies having common stock listed on the NYSE or NASDAQ) upgraded India’s credit rating from a negative to a stable, the NIFTY defied all odds and crossed the 8050 level.
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Nifty FAQ
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Should I trade the India50, based on the Nifty 50 index?
If you are looking for a way to trade and benefit from one of the fastest growing economies in the world then trading the India50, based on the Nifty 50 index might be something to consider. There are many ways to profit from moves in this index and it could present a great, overlooked opportunity for you. India has been one of the global leaders in GDP growth in the 21st century, and the increasing size of its middle class promises to massively increase the revenues and profits of the fifty companies included in the index.
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What are the benefits of trading the India50, based on the Nifty 50 index?
There are a number of benefits to trading India50, based on India’s Nifty 50 index at IPCAPITAL. Some traders claim that this index is relatively easy to predict using technical analysis. The index is likely to follow global sentiment and to hold well to support and resistance levels. It is also a fairly stable index since it is so well diversified. That helps to protect against sudden moves that could easily wipe out a trading position. The spreads are competitive for the India50, and traders are able to take advantage of substantial leverage to help boost potential returns.
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What is the best way to trade the India50, based on the Nifty 50 index?
As the Nifty index is composed of 50 large-cap stocks it is a good target for profitable trading. The diversity offered by the broad range of stocks means trading the India50, based on the Nifty 50 solely on technical analysis and profiting is a possibility when the right strategy is employed. One of these strategies is the moving average crossover. Traders have been successful using this system alone, without the need for other indicators cluttering their charts. For intraday trading a system using the 55 and 21 bar simple moving averages on a 5-minute chart can yield profitability for a nimble and disciplined trader.