Nifty 50 Companies: What is the Eligibility Criterion?

Nifty 50 Companies List: Introduction

“NIFTY is 50 points up, NIFTY is 100 points down” Do such statements make you think about what this NIFTY is about and how it works? NIFTY is an index for the National Stock Exchange (NSE). NSE is one of the oldest stock markets in Asia, it was founded in 1992 as the first dematerialized electronic exchange in India. Nifty is one of the two stock indices used in India. If you are new to the stock market and want to learn the basics of the stock market, this article is for you.

What will you learn?

•   What is the Nifty Index?
•   What is the eligibility to be listed on Nifty?
•  The calculation for NIFTY share price for the share market
•  What is NIFTY Bank?
•  Benefits of the Nifty Index
•  Investing in Nifty

An Overview of the Nifty Index

A large number of companies are listed on NSE and it becomes very difficult to analyze and keep the track of the price movement of all these companies. These companies are selected based on the float-adjusted market capitalization-weighted method. It is managed by NSE Indices Ltd. The main purpose of nifty is benchmarking fund portfolios and is used by traders to gauge the performance of the stock market.

The Nifty 50 was launched in April 1996 and it follows the trends and patterns of blue-chip companies. NIFTY also includes NIFTY IT,  NIFTY BANK, NIFTY NEXT 50, and NIFTY BASED DERIVATIVES.

Nifty 50 Companies: Eligibility

• The company must be registered with the National Stock Exchange (NSE).
• The company should have100% trading frequency in the last six months.
• Shares having differential voting rights.
• Shares must be highly liquid that can be measured by their average impact cost.
• The company should be allowed to trade in futures options.

The nifty index gets reconstituted after every six months, based on the performance of the companies and based on fulfilling the eligibility criteria, the elimination or inclusion of old or new stock is done. The reconstitution may be done when a company goes through a transformation like mergers, acquisitions, etc. The screening of the companies may also be done quarterly as per the SEBI regulations.

Nifty 50 Companies: Calculation

As the NIFTY is managed by NSE Indices Ltd. In the same way, NIFTY Share Index is managed by professionals from NSE Indices Ltd. The indices are calculated based on float-adjusted and market capitalization-weighted methods.

The formula for calculating the Nifty Share price index:

Index Value = Current market value or Market Value/ (Base Market Capital*1000)

Top Companies Listed On Nifty

The following are some companies that form NIFTY INDEX:

(Data as of November 25, 2022)

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns

What is the Bank Nifty Index?

The nifty bank index represents the most liquid and large banking stocks which trade on NSE. Bank Nifty was created by NSE on 15th September 2003.

The nifty bank meaning is to provide the investors with a benchmark that helps in analyzing the capital market performance of Indian bank stocks. It also helps in the launching of Index Funds and ETFs. The bank nifty index has 12 stocks from the banking sector.

Investing in Nifty

There can be different ways to invest in nifty. One can directly buy stocks from Nifty 50, the other is to invest in Index Mutual Fund that tracks Nifty 50 and another is investing in nifty through derivatives.

Investing in Nifty through Exchange-traded funds (ETF)

It is similar to index funds, however, it requires a Demat account whereas for mutual funds no Demat account is required. A Nifty ETF will track the Nifty Index. As compared to index funds, ETFs have become a more popular option because of liquidity. You may check out different Mutual Funds on INDMoney, compare different Mutual Funds and then invest wisely.

Benefits of Nifty Index Funds

• Nifty 50 replaces the underperforming stocks with the performing stocks as it reconstitutes the companies half-yearly or quarterly based on the performances of the companies.
• Long-term index funds help in beating inflation and giving returns, investment can be done through SIPs that are quite affordable and rebalances the portfolio even during high volatility in the market.
• Helps in diversifying the portfolio as it provides investment in different sectors. Diversification is the key to profits and stability in the stock market Nifty provides more than 12 sectors and the investors can invest in different companies under these sectors.
• The profits earned are for long-term purposes and bring stability to the investors.

Investing in Nifty through Derivatives - Futures & Options

The futures and options segment of NSE are dependent on nifty. When an investor starts trading in derivatives, he can earn profits from the price fluctuations in the market. Whenever the nifty is bullish or bearish an investor can take advantage of index futures contracts. Since the index is not a stock, the delivery cannot be taken after the expiry of the derivative contract and all of the derivatives should be cash-settled at the expiry.

Final Words

If you are a stock market freak then you must be aware that the Nifty acts as an indicator for the entire NSE.  Investors see nifty as a benchmark for measuring the overall performance of the equity market.

It reflects the market sentiments and the country’s economic condition. With the advent of nifty, dematerialization of securities started, index futures were launched, and based on the nifty stock market index, index options were introduced. 

Keeping the above explanation in mind an investor may invest in the nifty index as it is considered a good indicator of the stock market’s performance because of a diversified range of companies and with diversification the risk is reduced automatically. To keep yourself updated on the nifty index follow INDmoney.

Important things to remember:

1. Do Not Blindly Follow Hot Tips

No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 

2. Eliminate Loser Stocks from Portfolio 

There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 

3. Don't Exceed Your Investment Budget Abruptly 

While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares. 

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns