## How is NIFTY 50 calculated?

The nifty 50 index is calculated using the free-float market capitalization weighted method .That represents the current value of all stocks in the index relative to a base period value i.e., November 3, 1995 .

The Nifty 50 is an index that includes the top 50 companies of India by market capitalization that are listed on the National Stock Exchange (NSE). It shows the overall performance of these 50 companies and is used as a barometer to measure the performance of the Indian market.

The performance of these companies keeps changing and, accordingly, the value of the Nifty index. As of September 29, 2022, the Nifty is currently trading at 16,818; this figure is known as the index value. Today we will see how the Nifty Index value is calculated.

## How is NIFTY 50 calculated?

The NIFTY 50 is calculated using the free float market capitalization weighted technique using the following formula:

Index Value = (Current Free Float Market Cap./Base Market Capital) * Base Index Value

Free-float Market Capitalization = Market Cap * IWF

Market capitalization = Shares Outstanding * Current Share Price

• IWF is Investible Weight Factors, which is the unit that represents the number of shares of the company available for trading.  Every company has a calculated IWF value.
• Base Market Capital , for Nifty the Base Market Capital is Rs 2.06 Trillion which is the aggregate market capitalization of the index during the base period i.e., on November 3, 1995.
• and Base Index Value of Nifty is 1,000.

### Nifty Fifty Explained with Example:

Let's understand this through an example -

Assume that companies A, B, C, and D make up an index. The hypothetical information about the companies is as follows, with all values in INR with Base Index Value as 1,000 and Base Market Cap as Rs 10,000.

Therefore, Index Value = (32,000 /10,000)*1000 = 3,200

So, our hypothetical Index will have 3,200 current Index Values. Similarly, we can find for Nifty 50 by calculating the free float market capitalization and using that formula.

## Why IWF is needed?

The Investible Weight Factors determine the percentage share available for trading of a particular company. This is necessary because not all of the company's shares are available for trading and some of them are held by the company's owners, their families, its promoters, or the government. As a result, they must be excluded when calculating the index.

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Categories: Stock Market
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Related FAQs
How to find good companies as there are many publicly listed companies in the Indian stock market?

To find good companies out of the thousand companies listen on the Indian stock exchange, you can filter stocks on the basis of certain parameters such as Market cap, Debt to Equity, Dividend payouts, Revenue and Profits growth, etc. You can easily use an online stock screener to find out these stocks.

How can I buy the Nifty?

The Nifty 50 is an index consisting of the top 50 companies in terms of market cap, present on the NSE (National Stock Exchange). These companies can be termed as Large-Cap stable companies which are on top of the list. Buying Nifty directly is not possible as Nifty is not a stock that one can buy. One can get exposure to the Nifty indirectly by some investment lools like ETFs, etc.

How does an ETF work?

ETF is an investment instrument that tracks a group of securities from a particular asset class and performs according to it. It is managed by a Fund manager who makes sure that the ETF tracks the underlying asset accurately. ETFs are listed on the Stock Exchanges therefore one can buy & sell them within the market hours at their desired prices.

What is Relative Strength Index (RSI)?

The Relative Strength Index (RSI) is a technical analysis instrument that is used to assess if an asset or commodity is wildly overvalued or oversold by comparing the extent of rapid price momentum.

What are Index Funds? Meaning, Advantages, Review, Taxation

Index funds are mutual funds in which investment are made in the stocks of Index they track such as Nifty, Sensex according to its composition and weightage of the index.

How to add all Nifty 50 stocks in Zerodha Kite?

Zerodha is Indias largest discount broker in terms of the trading volume. Here you can create your own wishlist on the Kite application. The kite application is the trading terminal provided by Zerodha which is free to all its clients. The following steps can be followed to add the stocks to your watchlist.

What is Sensex and Nifty in share market?

Nifty and Sensex and two stock market index given to the top performing, financially established and stable companies where most of the individuals prefer investing.

What is difference - Mutual Funds vs Index funds?

The differences between index funds and mutual funds are vast. Learn what is mutual fund and index fund and know what differentiates the two investment options.

How are the top companies in Nifty and Sensex decided?

Nifty and Sensex play a major role in the economy of the country as they list the best performing companies among all. There are various criteria that are necessary to be under Nifty and Sensex Index such as Liquidity, Market Capitalization, etc.

Can I buy 1 share of Nifty or Bank-Nifty?

Nifty is an index comprising of the top 50 companies in terms of the market capitalization of the NSE (National Stock Exchange). Bank Nifty, on the other hand, comprises 12 top banking stocks of the NSE. These indices are an attractive option for investors as they track the performance of the most valuable companies of the NSE. Know if you can purchase one share in these indices.