Nifty 50 — A Leading Market Index from India

 

Nifty 50 is one of the two major market indices along with the Sensex that are used to gauge the health of the Indian stock market. It provides traders an exposure to the broader market of India as it tracks the performance of stocks from across sectors.

As the Indian market becomes more and more lucrative for the global investors, the Nifty 50 index has emerged as the most important indicator of the performance of the Indian economy.

In this article, we bring before you the journey of the Nifty 50 index in a historical perspective and how BitDelta traders can capitalise on index trends.

What is Nifty 50?
 

Nifty 50 in an index tracking the weighted average of 50 largest Indian companies publicly listed on the National Stock Exchange (NSE) of India.

The index is the largest single financial product in India. It is used for a variety of purposes such as benchmarking fund portfolios, index-based derivatives and index funds.

The Nifty 50 index is calculated using the free-float market capitalisation-weighted method. It indicates the aggregate market value of all the stocks in the index in relation to a base period value (as on 3 November 1995).

The free-float market cap is the total market value of the shares available for public trading, i.e., those that are not held by company owners or the government.

• The Nifty 50 Index is a diversified index accounting for 13 sectors of the Indian economy. The primary sectors the index provides exposure to are banking, consumer goods, automobiles, oil and gas.

• Even though the NSE lists over 1,300 stocks on its platform, the Nifty 50 index tracks the 50 best performing large cap companies in terms of market cap.

Note that Nifty 50 is a dynamic index, and the 50 companies included in it keep changing as per their performances.

For a company’s stock to be a part of the Nifty 50 index, it must fulfil certain criteria:

1. Firstly, the company must be publicly listed on the NSE, with its stocks available for trading in NSE’s Futures & Options segment.

2. Secondly, a company’s market cap should be among the top 50 market caps on a free-float basis. A company’s free-float market cap is its share price multiplied by its number of shares available for trading in the market.

3. A stock’s liquidity, determined by trading volume and number of transactions, is also a critical factor.

4. Lastly, each stock on the index undergoes the rebalancing process that takes place in June and December every year. Stocks keep getting listed or delisted on the index due to a change in market cap or suspension.

 

The index represents about 59% of the free float market capitalisation of the stocks listed on NSE as on 29 September 2023. It is the main barometer that global bodies look at in order to track the Indian market.

Only recently, the NSE emerged as the world’s seventh largest stock exchange by market cap as it overtook the Stock Exchange of Hong Kong, reported the Financial Times. The total market cap of companies listed on the NSE was $3.7 trillion as of the end of October 2023. The exchange was incorporated in 1992.
 

Recommended Read: Lifecycle of a Stock

A Look at Nifty 50 Throughout the Years

The Nifty 50 index was launched by the NSE in April 1996. The index was designed to capture the performance of the Indian equity market and offer a reliable indicator for investors.

 

Source: Nifty 50/INR, TradingView

Historically, the index has provided an average annual return of 207.68% over the last 10 years. Over the last five years, it has provided a return of 68.95%.
 

If we look at the performance of the Nifty 50 index over the last 27 years, there are a few crucial observations.
 

• The period from the mid-90s to early 2000s shows the general optimism associated with the Indian market after the economic liberalisation initiated around 1991.

• The 2008 economic crisis that spread out from the Wall Street percolated the Indian market too, but the relatively insulated nature of the market to global exposure didn’t harm it as severely as the European market.

• Next, we witness a decline in the performance of the index in 2019-20 when the COVID-19 pandemic hit the global economy. India, not being immune to the lockdown, also suffered drastically.

We can see that the index has been successful in recovering from the pandemic-led slowdown.

How Has 2023 Been for Nifty 50?
 

While Q1 2023 saw a consistent decline in the performance of Nifty 50, it managed to correct its course during Q2.
 

Its performance saw its ups and downs in Q3, but the index scored above the 19,200-mark for the most part. In fact, it crossed the 20,000-mark for the first time in its history in September 2023.
 

October witnessed a shocking decline of the index to 18,800 but the next month brought it back to a recovery course. The index again hit the 20k-mark around the end of November 2023. It gave 5.4% returns in November.

 

 

Source: Nifty 50/INR, TradingView

The index looks poised to continue its bullish performance in the next year too.

Should BitDelta Traders Invest in Nifty 50?

By investing in the Nifty 50 index, traders get exposed to a wide range of stocks from across sectors in the Indian market. Baking, information technology, automobiles, consumer goods, metals, telecommunication are some of the major sectors in India that the index exposes traders to.

Traders can invest in any financial product such as an index fund, derivative contracts or exchange-traded funds (ETFs) that tracks the index. Such a product imitates the performance of the index and maintains a portfolio in the same weightage as that of the index.

It is recommended for BitDelta traders to keep following the global market, in tandem with the Indian market, before making an investment in Nifty 50.

Keep your investment goals, savings, and risk appetite in mind before investing in a major index such as Nifty 50.