The broader benchmark index of National Stock Exchange, Nifty 50 breached the most anticipated 10,000 level on Tuesday after eluding the traders through the previous day. Not only this, it is the first-time in 10 years that the Nifty has hit two successive 1000-point marks in the same year, ie, Nifty hit both 9,000 and 10,000 for the first time in 2017 only. After its launch in April 1996, NSE Nifty-50 took 21 years to rise from 1,000 to 10,000, returning 11.6% per year (CAGR).
Nifty is the broader of the benchmark Indian equity indices, and is made up of 51 constituents now. Before the introduction of Nifty which is traded on and owned by the National Stock Exchange, it was BSE’s Sensex which was the unchallenged ruler in the Indian equity markets.
Top 10 constituents by weightage comprising the index are HDFC Bank 9.3%, ITC 7.65%, Housing Development Finance Corporation 7.13%, Reliance Industries 6.36%, Infosys 5.19%, ICICI Bank 5.17%, Larsen & Toubro 3.85%, Tata Consultancy Services 3.49%, Kotak Mahindra Bank 3.23%, State Bank of India 2.82%.
The broader Indian index: Nifty
The Nifty 50 is a diversified 50-share index comprising of the 12 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds. The broader Nifty 50 is owned and managed by India Index Services and Products Ltd (IISL), unit of the National Stock Exchange. IISL is India’s specialised company focused upon the index as a core product.
The Nifty 50 Index represents about 62.9% of the free float market capitalisation of the stocks listed on NSE as on March 31, 2017. The total traded value of Nifty 50 index constituents for the last six months ending March 2017 is approximately 43.8% of the traded value of all stocks on the NSE.
The National Stock Exchange of India commenced trading in derivatives with index futures on June 12, 2000. The futures contracts on NSE are based on Nifty 50. The Exchange later introduced trading on index options based on Nifty 50 on June 4, 2001.
Base date and value
The base period selected for Nifty 50 index is the close of prices on November 3, 1995, which marks the completion of one year of operations of NSE’s Capital Market Segment. The base value of the index has been set at 1000 and a base capital of Rs.2.06 trillion. Since June 26, 2009, Nifty 50 is computed using Free Float Market Capitalisation weighted method, wherein the level of the index reflects the free float market capitalisation of all stocks in Index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value.
Nifty milestones (1000-point marks)
- 2000: 2 December 2004
- 3000: 30 January 2006
- 4000: 1 December 2006
- 5000: 27 September 2007
- 6000: 11 December 2007
- 7000: 12 May 2014
- 8000: 01 September 2014
- 9000: 14 March 2017
- 10000: 25 July 2017
Index Maintenance plays a crucial role in ensuring the stability of the Index as well as in meeting its objective of being a consistent benchmark of the equity markets. IISL has constituted an Index Policy Committee, which is involved in policy and guidelines for managing the Nifty Indices. The Index Maintenance Sub-committee takes all decisions on addition/ deletion of companies in any Index. The index is reviewed every six months (on half-yearly basis) and a four weeks’ notice is given to the market before making changes to the index set.
Total index returns
Nifty 50 reflects the return one would get if the investment is made in the index portfolios. As Nifty 50 is computed in real-time, it takes into account only the price movements. However, the price indices do not consider the return from dividend payments of index constituent stocks. Only the capital gains due to price movement is measured by the price index. In order to get a true picture of returns, the dividends received from the index constituent stocks also needs to be included in the index movement. Such an index, which includes the dividends received, is called the Total Returns Index. The Total Returns Index is an index to reflect the returns on the index from index gain/loss plus dividend payments by constituent index stocks.