August 30, 2017

5 things not commonly known about the NIFTY

Some interesting read:

5. How the NIFTY 50 is decided:

The NIFTY started in 1996 as a full market-capitalisation weighted index, i.e. (number of shares outstanding X share price) to find largest companies by full market capitalisation. In June 2009, it shifted to the float-adjusted market-capitalisation weighted methodology, i.e. (number of shares available for trading X share price). This method excludes the shares owned by promoters to include only companies with significant number of shares available to outside investors and traders. This ensures liquidity and therefore lower price volatility.

The stocks in the index account for approximately 65% of float-adjusted market cap of the 1600 companies listed on the NSE

4. What NIFTY “levels” mean

The base period for the NIFTY 50 index is November 3, 1995, which marked the completion of one year of operations of NSE’s Capital Market Segment. The base value of the index was set at 1000, and a base capital of Rs 2.06 trillion (Rs 206,000 Crores).

NIFTY Index level at any given instant  = Current Market Capital / Base Capital X Base Index Value (1000)

Note how NIFTY levels only consider price movements and not dividends received. NSE also offers the Total Returns Index that addresses this drawback in calculating total returns. As a thumb rule, add 1 – 1.5% to NIFTY return to arrive at actual return.


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