The Nifty50 is an index of the 50 stocks of the top 50 companies by performance listed on the National Stock Exchange (NSE) in India.

In this blog, we will cover everything you need to know about investing in the Nifty50, including its history, stocks, weightage, and how to invest in it.

This week, two major banks predicted two vastly different results for the Nifty50.

ICICI Direct, the brokerage platform of the bank ICICI is of the opinion that the Nifty will touch 21,000 in 2023.

The bank cites time duration trends in the past year to arrive at this result.

Meanwhile, Bank of America has predicted that Nifty 50 will fall to 18,000, the worst in 7 years this year.

Let us understand first what Nifty 50 is and how it is calculated. Further let’s dive deep into if it’s worth investing in the Nifty 50 or not.

What is Nifty50?

The Nifty50 is an index of the top 50 companies listed on the National Stock Exchange (NSE) in India. 

How does NSE pick the Nifty 50?

The free-float market capitalization weighted methodology is used to calculate the Nifty50 index. This means that the weightage of each stock in the index is proportional to its market capitalization adjusted for the number of shares available for public trading. 

Formula to calculate Nifty 50:

Nifty50 index value = [(Sum of free-float market capitalization of all stocks in the index) / (Index Divisor)] x Base Value

The weightage of each stock in the index is calculated as follows:

Weightage of a stock in the index = (Free-float market capitalization of the stock / Sum of free-float market capitalization of all stocks in the index) x 100

Sum of free-float market capitalization of all stocks in the index is the sum of the market capitalization of each stock in the index, adjusted for the proportion of shares held by promoters, government, and other entities that are not available for public trading.

Free-Float Market Cap =Total Shares Outstanding * (1 – % of Shares Held by Promoters)

For example, let’s say that a company has 1,000,000 shares outstanding, out of which 20% (or 200,000 shares) are held by promoters and are not available for public trading. The free float market capitalization of the company would be:

Free Float Market Cap = 1,000,000 * (1 – 0.20) = 800,000.

The Free Float Factor is 0.8 here since 80% of shares are open for public trading.

Index Divisor

Index Divisor is a factor used to adjust the index value for any changes in the base value or corporate actions such as stock splits, mergers, or acquisitions.

For Example,

Let’s say an index comprises 20 large firms, with their share prices adding up to a total of 476. 

476 is difficult to do calculations with.

To simplify things, an index divisor of 4.76 is introduced, bringing the index value down to 100. 

Now, it is easy to do calculations with 100 and estimate changes in the index over time.

Let’s take a tangent and elaborate what are the calculations that we can do with an index divisor.

 For example, if 5 securities including CompanyA and CompanyE  are used to calculate an index, and the share of CompanyA gained Rs.1 on Day 2, while the share of CompanyE lost Rs.1.

Let’s say CompanyA has 50 shares and CompanyE has 10 shares.

Free Float Factor is 1. No shares are held by promoters and all the shares are open for public trading.

Let’s assume the index divisor is 10.

That means we could expect a total change in index points of:

Total change in index points = (outstanding shares/index divisor)*change in share price * free float factor)

= ((50/10)*(Rs.1)*1.00) + ((10/10)*(-Rs.1)*1.00)

= 5 -1 = 4

The index divisor can also be used to quickly calculate the change in the index’s total market cap:

Total change in market cap = change in index points * index divisor

= 4 * 10

= Rs.40

Base Value

Base Value is the value of the index on the base date, which is January 1, 1996, and is set at 1000.

Let’s consider an example to demonstrate the calculation of the Nifty50 index value and weightage of a stock in the index using the free-float market capitalization weighted methodology. 

For simplicity, let’s assume that the Nifty50 index consists of only 3 stocks, and their free-float market capitalization and number of shares available for public trading are as follows:

Stock A: Free-float market capitalization = Rs. 1,000 crore, Number of shares available for public trading = 100 crore.

Stock B: Free-float market capitalization = Rs. 1,500 crore, Number of shares available for public trading = 150 crore.

Stock C: Free-float market capitalization = Rs. 2,000 crore, Number of shares available for public trading = 200 crore.

Let’s assume that the Index Divisor is 10. The Base Value of Nifty50 is 1000, 

Nifty50 index value = [(Sum of free-float market capitalization of all stocks in the index) / (Index Divisor)] x Base Value

= [(1,000 + 1,500 + 2,000) / 10] x 1000

= 4,500

Hence, the Nifty50 index value is 4,500.

To calculate the weightage of each stock in the index, we can use the formula:

Weightage of a stock in the index = (Free-float market capitalization of the stock / Sum of free-float market capitalization of all stocks in the index) x 100

For Stock A, the weightage in the index will be:

Weightage of Stock A = (1,000 / 4,500) x 100

= 22.22%

Similarly, for Stock B and Stock C, the weightage in the index will be:

Weightage of Stock B = (1,500 / 4,500) x 100

= 33.33%

Weightage of Stock C = (2,000 / 4,500) x 100

= 44.44%

Therefore, the weightage of Stock A in the Nifty50 index will be 22.22%, Stock B will be 33.33%, and Stock C will be 44.44%.

Nifty50 represents the performance of India’s equity market and is considered one of the benchmarks of the Indian stock market. It is a market capitalization-weighted index, which means that the companies with higher market capitalization have a higher weightage in the index.

Is Nifty50 a good investment?

Nifty50 tracks the index of 50 stocks listed in the NSE. Index funds are always preferred by investors as a relatively safe investment. 

But in India, where the market is growing, compared to more mature markets in the west, portfolios with hand-picked individual stocks with better performance have the potential to beat the index.

Like with all other stocks and asset classes, the performance of the index can perform better or worse.

History of Nifty50

The Nifty50 was first introduced by the NSE on April 22, 1996, as a derivative of the Nifty index. It was created to measure the performance of the top 50 companies in India, and its base year was set to 1995. The index was initially calculated using the full market capitalization methodology, but it was later changed to the free-float market capitalization methodology in 2009.

Nifty50 Stocks

The Nifty50 consists of 50 stocks that represent various sectors of the Indian economy. The stocks under Nifty50 are some of the biggest and most well-known companies in India, such as Reliance Industries, HDFC Bank, Infosys, Tata Consultancy Services, and Hindustan Unilever.

What is the Weightage in the Nifty50 Index?

The weightage of each stock in the Nifty50 is based on its free-float market capitalization. This means that the more shares that are available for trading in the market, the higher the weightage of the stock in the index. As of March 2023, the top five companies in the Nifty50 by weightage are:

Reliance Industries – 15.81%

HDFC Bank – 9.27%

Infosys – 8.58%

ICICI Bank – 6.93%

TATA Consultancy Services – 6.52%

How to Invest in Nifty50 Stocks?

There are several ways to invest in Nifty50 stocks. Let’s take a look at each one in detail.

Take the ETF Route

Exchange-traded funds (ETFs) are an excellent way to invest in the Nifty50. An ETF is a type of investment fund that trades on stock exchanges, just like stocks. The value of an ETF is based on the performance of the underlying assets, in this case, the Nifty50 index.

Investing in Nifty50 ETFs is easy. All you need to do is open a demat account with a broker and buy the ETFs just like you would buy stocks. Some popular Nifty50 ETFs are:

Nippon India ETF Nifty BeES

ICICI Prudential Nifty ETF

UTI Nifty ETF

Invest in index funds

Index funds are mutual funds that are designed to track the performance of an underlying index, such as the Nifty50. In the case of the Nifty50, an index fund would invest in the 50 stocks in the same proportion as the index. 

Nifty 50 Returns

This means that the returns of the index fund would be similar to the returns of the Nifty50 index.

Investing in Nifty50 index funds is similar to investing in ETFs. You need to open a demat account and invest in the index fund through a broker. Some popular Nifty50 index funds are:

HDFC Index Fund – Nifty 50 Plan

SBI ETF Nifty 50

ICICI Prudential Nifty 50 Index Direct Plan

LIC MF Index Fund – Nifty Plan.

Another way to invest in Nifty50 stocks is through index funds.Index funds are also considered a cost-effective way to invest in the stock market because they have low expense ratios and trading costs.

Invest via derivatives

Investing in derivatives, such as futures and options, is another way to gain exposure to the Nifty50. Derivative contracts are agreements between buyers and sellers to buy or sell an underlying asset, such as the Nifty50, at a predetermined price and time in the future.

Nifty50 futures are contracts that allow investors to buy or sell the Nifty50 index at a predetermined price and date in the future. Futures contracts are a popular tool used by traders to speculate on the future price movements of the index and manage their risk exposure.

Futures contracts allow investors to buy or sell the Nifty50 at a future date at a predetermined price, while options contracts give investors the right but not the obligation to buy or sell the Nifty50 at a future date at a predetermined price. 

Derivatives trading requires a higher level of knowledge and expertise than investing in ETFs or index funds, and it can be riskier due to the potential for high leverage and volatility.

Invest in stocks directly

The final way to invest in Nifty50 stocks is to buy individual stocks directly. Investing in individual stocks requires a higher level of knowledge and research than investing in ETFs or index funds, as investors need to analyze the financial performance and future prospects of each company before making investment decisions.

Investors can buy and sell Nifty50 stocks through their brokerage accounts. It is important to note that investing in individual stocks can be riskier than investing in ETFs or index funds, as the performance of individual stocks can be highly volatile and unpredictable.

Ideal Investment Amount:

You can start investing in Nifty 50 based on the method of investment.

If you invest in Nifty 50 through an ETF, the minimum investment amount for an ETF can be as low as the price of one share.

If you invest in Nifty50 through mutual funds, the minimum cost investment can range from as low as Rs. 100 to Rs. 5000, depending on the mutual fund scheme.

If you invest in Nifty 50 through index funds, the minimum investment amount varies based on the index fund scheme.

The Nifty50 value is the current value of the Nifty50 index, which is calculated by taking the weighted average of the stock prices of the 50 companies included in the index. The Nifty50 value is an important indicator of the overall health of the Indian stock market and is used by investors to assess the performance of their investments.

Investment in Nifty50 for the long term:

Investing in Nifty50 should be done with a long-term perspective. The stock market can be volatile in the short term, but historically, it has provided higher returns in the long term.

When investing in Nifty50 stocks, investors can buy and sell stocks based on their investment strategy and market conditions. Investors can purchase stocks when prices are low and sell them when prices rise to book a profit. Alternatively, investors can hold onto stocks for the long term and benefit from the growth potential of the companies.

Investing in Nifty50 for the long term can be done through various avenues such as mutual funds, exchange-traded funds (ETFs), and index funds that track the Nifty50. The investment strategy for the long term should focus on diversification and periodic rebalancing of the portfolio to reduce risk and optimize returns.

Mutual Funds:

Mutual funds are a popular investment option for investors looking to invest in Nifty50 for the long term. The mutual funds can be either actively managed funds or passively managed funds. Actively managed funds aim to beat the benchmark index by making investment decisions based on research and market analysis, while passively managed funds aim to replicate the performance of the benchmark index by investing in the same stocks and in the same proportions.

Exchange-traded Funds (ETFs):

Exchange Traded Funds are another investment option that provides exposure to the Nifty50. ETFs are traded on stock exchanges like shares, and their prices are determined by the market demand and supply. ETFs can be bought and sold at any time during market hours, providing investors with flexibility and liquidity.

Index Funds:

Index funds are passive investment funds that aim to replicate the performance of the benchmark index, such as Nifty50. Index funds invest in the same stocks and in the same proportions as the benchmark index, providing investors with exposure to the entire market at a low cost. Index funds are a good investment option for long-term investors who want to minimize costs and maximize returns by investing in a diversified portfolio of stocks.

Pool Money:

One way to invest in Nifty50 stocks is to pool money with other investors through mutual funds or index funds. By pooling money, investors can gain access to a diverse portfolio of Nifty50 stocks without having to invest a large amount of money on their own. This approach is suitable for investors who want to start small or do not have enough capital to invest in individual stocks.

Nifty50 investing chart:

A Nifty50 chart is a visual representation of the historical price movements of the Nifty50 index over a period of time. It is a popular tool used by investors to analyze and track the performance of the Indian stock market. 

The chart plots the movement of the index over a specified period, and investors use it to identify trends, patterns, and potential investment opportunities.

You can trade in Nifty 50 Stocks in StockPe’s Trading Tournaments in the StockPe app.