Whenever we talk about the markets we hear a jargon called “Nifty”. Did you ever dwell and gone bit crazy of what this NIFTY is all about in detail. If not , Don’t worry I will clear that for you. Let’s begin…,
NIFTY is a major stock Index or Market Index introduced by the National Stock Exchange of India. A market index is simply a convenient summary of market prices. An index helps make sense of this chaos and gives you a single number which tells you how well the market is performing compared to earlier periods.
Market indices are an integral part of the stock Market and the performance of stocks that constitute the index determine how the index performs. If the stock prices go down, then the index also falls. Conversely, any rise in stock prices means that the index will also rise.
NIFTY was coined from two words “National” and “FIFTY”. They word 50 is used because; the index consists of 50 actively traded stocks from various sectors.
For calculating the value of NIFTY:
The base year is taken as 1995.
The base value is set to 1000.
Nifty is calculated on 50 stocks actively traded in the NSE
50 top stocks are selected from 22 sectors. (51 Stocks as of today are part of Nifty50 index.)
The base capital is 2.06 trillion.
An index committee studies and analyzes different companies and then compiles a list of these 50 companies based on their respective “Free-float market cap”
The NIFTY 50 covers 22 sectors of the Indian economy and offers investment managers exposure to the Indian market in one portfolio.
NIFTY 50 index gives 29.70% weightage to financial services, 0.73 % weightage to industrial manufacturing and nil weightage to agricultural sector.
Importance of Nifty (Market Index) :
1) The primary purpose of any market index is to be an indicator of how the stock market will perform.
2) Financial research analysts use market indices in economic research for facilitating better regulatory measures to increase the market cap as well the performance of the stock market.
3) Market indices play a significant role in passively managed index Mutual Funds.They are also used as benchmarks to measure the performance of fund managers handling mutual funds.
4) Analysts of market indices allow individuals to use index-based derivatives to offset risk through hedging. In that regard, market indices have a big part in the risk management practices within the global economy.