What is NIFTY 50? How to Buy NIFTY 50 Index? | NIFTY 50 Stocks | ETMONEY

Summary

This video delves into the Nifty 50, India's leading stock market index, showcasing its evolution, composition, and significance as an economic barometer. It explains how the index is calculated, the criteria for company inclusion, and the historical performance of the Nifty 50. The script also discusses investment strategies, such as direct stock buying or investing in index funds, and highlights the benefits of systematic investment plans for long-term wealth creation.

Takeaways

• 📈 The Nifty 50 is a market index representing the weighted average of India's top 50 companies listed on the National Stock Exchange (NSE).
• 🏆 It includes blue-chip companies like Reliance Industries, State Bank of India, Maruti Suzuki, TCS, and Asian Paints, which account for 55-60% of the market capitalization of all companies on NSE.
• 🌐 The Nifty 50 is a key indicator for the long-term health of the Indian economy and has an ecosystem of financial products including ETFs, options, and futures.
• 📚 The index has evolved over 25 years, with only 13 of the original 50 companies remaining, reflecting shifts from a manufacturing to a services economy.
• 🔍 The selection process for Nifty 50 constituents is based on free float market capitalization, liquidity, and semi-annual rebalancing.
• 📊 Nifty's constituents are spread across 13 different sectors, with financial and IT companies making up the majority of the index at 55%.
• 💹 The Nifty 50 has shown a strong performance over 25 years, with a compound annual growth rate (CAGR) of 11.7%, outperforming other asset classes like gold and real estate.
• 💼 Despite market fluctuations, the Nifty has had only seven negative years, demonstrating its potential as a long-term investment tool.
• 💰 The script highlights the benefits of Systematic Investment Plans (SIPs) for disciplined investing, showing how a consistent investment in Nifty could have grown significantly over time.
• 🚀 Future growth of the Nifty is expected to be influenced by emerging sectors like e-commerce, AI, robotics, and renewable energy, as India's GDP is projected to grow, making it an economic powerhouse by 2050.
• 🏦 Two main ways to invest in the Nifty are by buying constituent stocks proportionally or through index mutual funds that track the Nifty 50, with the latter being more accessible for retail investors.

Q & A

What does the term 'Indian stock market' typically refer to?

The term 'Indian stock market' typically refers to either the Nifty or the Sensex, which represent the largest listed companies in India and serve as key indicators of the long-term health of the Indian economy.

What does Nifty 50 represent?

Nifty 50 represents the weighted average of India's top 50 companies listed on the National Stock Exchange, serving as a market index for blue-chip companies.

How has the composition of the Nifty 50 changed over the years?

The composition of the Nifty 50 has evolved significantly, reflecting the shift from a manufacturing to a services economy in India. It has seen almost 100 changes in its constituents over the last 25 years, with new sectors and companies emerging.

What is the significance of free float market capitalization in the selection of Nifty 50 companies?

Free float market capitalization is crucial as it represents the proportion of a company's capital that is publicly traded and accessible to the general public. It is used to determine the weightage of a company in the Nifty 50 index.

How often does the Nifty 50 undergo rebalancing and reconstitution?

The Nifty 50 undergoes a semi-annual rebalancing exercise in June and December each year to ensure it accurately represents India's largest and finest companies.

What was the base value of the Nifty 50 when it started, and what is its approximate value today?

The Nifty 50 started with a base value of 1,000 points and is now on the verge of touching 16,000 points.

What is the historical Compound Annual Growth Rate (CAGR) of the Nifty 50 over the past 25 years?

The historical CAGR of the Nifty 50 over the past 25 years is approximately 11.7%.

How many of the original companies from the 1996 Nifty list are still part of the Nifty today?

13 companies from the original 1996 Nifty list are still part of the Nifty today.

What are the two main ways to invest in the Nifty 50?

The two main ways to invest in the Nifty 50 are by buying stocks in the same percentage as their composition in the Nifty or by investing in an index mutual fund that tracks the Nifty 50.

Why are index funds preferred by most investors for investing in the Nifty 50?

Index funds are preferred because they replicate the performance of the Nifty 50 without the need for active management, have a low expense ratio, and follow a well-defined system that eliminates human biases in stock selection.

Outlines

00:00

📈 Introduction to Nifty 50

The script introduces the Nifty 50, a market index representing the weighted average of India's top 50 companies listed on the National Stock Exchange (NSE). It explains that the Nifty 50 is a key indicator of the Indian economy's health and includes companies like Reliance Industries and the State Bank of India. The video promises to delve into the Nifty 50's composition, performance, and investment opportunities. It also mentions the historical significance of the index, highlighting that only 13 of the original 50 companies from 1996 remain part of the index today, reflecting the shift from a manufacturing to a services economy.

05:02

🏦 Methodology of Nifty 50 Constituents Selection

This paragraph outlines the process of selecting companies for the Nifty 50 index. It starts with the universe of stocks, which must be listed on the NSE and available for trading in its futures and options segment. The selection is based on the top 50 companies by free float market capitalization, which excludes shares not available for public trading. The script also discusses liquidity rules and the semi-annual rebalancing process that ensures the index remains representative of India's largest and finest companies. It concludes with a look at how the sectoral composition of the Nifty has evolved over time, with a growing presence of IT and banking sectors.

10:04

🚀 Historical Performance and SIP Investment Strategy

The script examines the historical performance of the Nifty 50, noting its compound annual growth rate (CAGR) of 11.7% over 25 years, which is higher than other asset classes like gold and real estate. It discusses the ups and downs of the index, including the significant drop in 2008 and subsequent recovery. The video then illustrates the benefits of systematic investment planning (SIP) through a hypothetical example of investing 10,000 rupees in the Nifty every month since 1996, resulting in a substantial wealth accumulation by 2021. Despite market fluctuations, the Nifty has proven to be a reliable long-term investment tool.

15:05

💼 Investment Opportunities in Nifty 50

The final paragraph discusses two primary methods of investing in the Nifty 50: buying individual stocks in the same proportion as their weight in the index or investing in a Nifty 50 index mutual fund. The script points out the challenges of direct stock buying, such as the inability to own fractional shares, making it impractical for average investors. Instead, it recommends index funds as a more accessible and cost-effective way to invest in the Nifty, which replicate the index's performance and require no active management, thus minimizing human biases and expenses.

📚 Conclusion and Next Steps

The script concludes by emphasizing the growing interest in index funds in India due to their low cost, SIP facility, and lack of need for active management. It encourages viewers to invest in index funds through the Etimony app, which allows for small monthly investments, and to follow the channel for more educational content. The video ends with a reminder of the inherent risks of mutual fund investments and the importance of reading all scheme-related documents carefully.

Keywords

💡Indian Stock Market

The Indian Stock Market refers to the platform where shares of publicly listed companies are traded. In the context of the video, it specifically mentions the Nifty and the Sensex, which are indices representing India's largest listed companies. The video explains how these indices serve as a barometer for the long-term health of the Indian economy, indicating their importance in gauging market performance.

💡Nifty 50

Nifty 50 is a term used to describe the weighted average of India's top 50 companies listed on the National Stock Exchange (NSE). The video script explains that it is a market index representing a portfolio of blue-chip companies, and it details the companies that comprise the Nifty 50, such as Reliance Industries and the State Bank of India, emphasizing their significance in the Indian economy.

💡Market Capitalization

Market Capitalization is the total value of a company's shares of stock, calculated by multiplying the number of shares by the current market price per share. The script mentions that the 50 companies in the Nifty 50 have a combined market capitalization of over 1.25 crore crores, which is a significant portion of the total market capitalization of all companies listed on the NSE.

💡Mutual Funds

Mutual Funds are investment vehicles that pool money from many investors to invest in a diversified portfolio of stocks, bonds, or other assets. The video discusses how mutual funds use the Nifty as a benchmark for their performance, indicating the Nifty's role in the broader financial ecosystem.

💡Exchange Traded Funds (ETFs)

ETFs are a type of investment fund and exchange-traded product, traded on stock exchanges much like individual stocks. The script explains that ETFs are part of the ecosystem around the Nifty, allowing investors to gain exposure to the Nifty 50 without having to buy each stock individually.

💡Free Float

Free Float refers to the portion of a company's shares that are available for trading by the public, excluding those held by insiders or restricted from sale. The video script uses the example of Wipro Limited to illustrate how free float market capitalization is considered when determining a company's weightage in the Nifty 50 index.

💡Rebalancing and Reconstitution

Rebalancing and Reconstitution are processes that adjust the composition of an index to ensure it accurately represents the market. The video script explains that the Nifty 50 undergoes semi-annual rebalancing to reflect changes in the market and maintain its representation of India's largest and finest companies.

💡Sectoral Makeup

Sectoral Makeup refers to the distribution of companies within an index across different industry sectors. The video discusses how the sectoral makeup of the Nifty has evolved over the years, moving from a manufacturing economy to a services economy, and how it currently represents 13 different sectors.

💡Compound Annual Growth Rate (CAGR)

CAGR is a measure of the rate of return of an investment over a specified period of time, expressed in annual terms. The script mentions that the Nifty 50 has a CAGR of 11.7% over 25 years, highlighting its performance as an investment.

💡Systematic Investment Plan (SIP)

A SIP is an investment strategy where an investor contributes a fixed amount at regular intervals to a mutual fund. The video script provides an example of how investing a fixed amount monthly in the Nifty 50 through a SIP could lead to substantial wealth creation over a long period.

💡Index Funds

Index Funds are a type of mutual fund with a portfolio constructed to match or track the components of a financial market index, such as the Nifty 50. The video script explains that index funds are a popular investment option because they replicate the performance of the index, require no active management, and have low expense ratios.

Highlights

The Nifty 50 represents the weighted average of India's top 50 companies listed on the National Stock Exchange.

Nifty 50 is a market index and includes blue-chip companies like Reliance Industries, State Bank of India, Maruti Suzuki, TCS, and Asian Paints.

The total market capitalization of the Nifty 50 companies is over 1.25 crore crores, accounting for 55-60% of the market capitalization of all companies listed on the National Stock Exchange.

Mutual funds use the Nifty as a benchmark, and there is an ecosystem of products around the Nifty, including ETFs, exchange-traded options, futures, and other services.

The Nifty was introduced in 1996, and only 13 of the original 50 companies are still part of the index after 25 years.

The Nifty has evolved from having zero technology companies at inception to now including major IT outsourcing giants like Infosys and TCS.

The selection process for Nifty 50 companies is based on a well-defined and transparent methodology involving the universe of stocks, basic construct, liquidity rules, and rebalancing and reconstitution rules.

Companies must be listed on the National Stock Exchange and available for trading in NSE's futures and options segment to be part of the Nifty.

Free float market capitalization is a key factor in determining a company's inclusion in the Nifty 50.

Liquidity is a consideration for selecting Nifty 50 stocks, favoring companies with consistently high trading volumes.

The Nifty undergoes a semi-annual rebalancing exercise in June and December to accurately represent India's largest and finest companies.

The Nifty 50 has representation from 13 different sectors, with financial and IT companies making up 55% of the index.

The Nifty 50 has seen almost 100 changes in its constituents over the last 25 years, reflecting the dynamic nature of the Indian economy.

The Nifty 50 has a base value of 1,000 points and is nearing 16,000 points, reflecting a CAGR of 11.7% over 25 years.

Investing in the Nifty through a Systematic Investment Plan (SIP) has demonstrated significant wealth creation over the years.

There are two ways to invest in the Nifty: buying stocks in the same percentage as its composition in the Nifty or investing in an index mutual fund that tracks the Nifty 50.

Index funds are preferred by most investors for their low expense ratio, lack of active management, and adherence to a well-defined system.

The future of the Nifty is expected to include sectors like e-commerce, autonomous vehicles, logistics, artificial intelligence, robotics, defense, and renewable energy.

Transcripts

[Music]

when traders analysts fund managers

speculators punters you me

when we use the term indian stock market

we are for all practical purposes

talking about either the nifty or the

sensex

after all these two words identify with

india's largest listed companies and

present themselves as a key barometer

for gauging the long-term health of the

indian economy

in this video we shall examine the nifty

50 in greater details including

what it means

which companies comprise the nifty house

the performance bin

how can one invest in the nifty 50 and a

lot more let's begin

[Music]

the nifty 50 represents the weighted

average of india's top 50 companies that

are listed on the national stock

exchange

in fact this term nifty 50 is a short

form of the national stock exchange 50

but over the years it has been shortened

even further and today most people

simply refer to it as the nifty so the

nifty 50 is a market index and like any

index it represents a portfolio of

investment holdings which happen to be

the bluest of the blue chip companies

after all we are talking about companies

like reliance industries the state bank

of india maruti suzuki tcs asian paints

and 45 other industry leading companies

in fact at the time of recording this

video these 50 companies together had a

total market capitalization of over

1.25 crore crores

which represents between 55 to 60

percent of the market capitalization of

all companies listed on the national

stock exchange

the nifty's importance in the financial

markets also allows for a lot of

innovation around it

for instance a number of mutual funds

use the nifty as its benchmark

in fact there is an entire ecosystem of

products around the nifty which includes

onshore and offshore exchange traded

funds exchange traded options futures

and a host of other services making the

nifty 50 the world's most actively

traded contract and speaking of an

ecosystem we have recently introduced a

learn section on the etimony app from

where one can access our best videos and

our best blogs to build upon the

investing knowledge that you already

have

so do download the etimony app and do

subscribe to this youtube channel for

more such insightful videos

[Music]

here's a question for you the nifty was

introduced by the national stock

exchange in the year 1996 which makes it

a good 25 years old

so the question is of the original list

that is

the list of 50 stocks compiled in 1996

how many of those companies are still

present in the nifty after 25 years to

help you out here's the 2021 list

and now you got to think no wait first

you need to pause this video and then

think which of these companies might

have been in existence in 1996

and was significant enough at that time

to be a part of the top 50 list 25 years

back

[Music]

all right welcome back and i hope you

have been able to count 13

because that's the number of companies

that have celebrated 25 years of

existence in the nifty

and the usual suspects are all there

there's hdfc reliance sbi itc a couple

of tata companies etc

but the bulk of the company companies a

good 75 percent of them have either

merged with others or have simply lost

relevance over time

in fact here's a list we found on the

original nifty companies of 1996

and some of the names did come as a

surprise names like brooke pond lipton

ranbaxy irvin mills

ponds india colgate indian hotels

and what's missing here are the many

banks and i.t companies that make up a

bulk of today's nifty

in fact comparing the 1996 table with

the 2021 table shows us how india has

moved from being a manufacturing economy

to a services one over these last 25

years

the point is that companies that

represent the nifty do change and the

index has seen almost 100 changes in its

constituents over the last two and a

half decades

[Music]

the nifty has a very well defined and

transparent methodology of selecting the

constituent companies

in fact the selection process can be

examined in four parts the universe of

companies the basic construct the

liquidity rules and the rebalancing and

reconstitution rules

let's start with the universe of stocks

and should come as no surprise that a

company should be compulsory listed on

the national stock exchange for it to be

a part of the nifty more importantly the

company should also be available for

trading in nse's futures and options

segment

in terms of the basic construct the

selected companies have to be in the top

50 companies in terms of their free

float market capitalization now

understanding this word free float is

important and it quite simply means

those shares or that proportion of the

capital that is publicly traded

in other words anyone can buy or sell

these shares and they are not blocked or

restricted by company insiders like the

promoters strategic partners employee

welfare trusts or even the government

a good example of this is wipro limited

where 73 percent of the shares are

controlled by azeem pranji and his

family which makes these 73 shares

inaccessible to the general public

so to put it in numbers at the time of

recording this video wipro's total

market capitalization was 3 lakh 15 000

crores however its free float

capitalization was only 27 percent of

that which comes to 85 000 crores which

means from an index calculation

perspective it is this 85 000 crores

which will be considered in determining

wipro's weightage in the nifty 50. so

different companies have a different

level of free float measuring from as

low as 25

of the total market cap to as high as 98

the third area of consideration when

selecting nifty 50 stocks is its

liquidity and this is where only those

companies are considered those trading

volumes are always high and the final

selection component is the semi-annual

rebalancing exercise that determines

which stocks stay within the nifty which

new ones come in and which of the

existing companies move out of the nifty

this process happens in june and

december of every year and is an

important exercise as we want the nifty

to be an accurate representation of

india's largest and india's finest

companies

in fact a case in point is how the

sectoral makeup of the nifty has changed

over the years for instance at the time

of inception the nifty had zero

technology companies and had just one

private bank today the top 10 companies

within the nifty have four banks in the

private sector and two it outsourcing

giants in the form of infosys and tcs

and speaking about sectors the nifty

carries representation from 13 different

sectors although the financial and the

i.t companies make up 55 percent of the

index but it should not come as any

surprise that the nifty will have a very

different form and shape another 5 10 20

years from now when we see new sectors

and new companies emerging

like there was no insurance five years

back but now it's there similarly

e-commerce and internet companies were

privately held but now we have a zomato

which is likely to be followed by a

flipkart paytm by juice and other new

age consumer facing businesses

and while that happens and the nifty

continues to change shape we have no

doubt that the nifty will continue to

serve as one of the primary barometers

of our country's prosperity

[Music]

the nifty 50 started its journey from a

base value of a thousand points and

today is on the verge of touching 16 000

points

that's a cagr of 11.7

over these 25 years which is a lot

higher than other asset classes like

gold and real estate which have

delivered between eight and nine percent

during the same time period

now given the nature of equity markets

the nifty 50 has witnessed many ups and

downs

like in the year 2008 when the nifty

dropped by over 50 percent only to win

back a lot of it in the very next year

in fact more often than not the nifty

has deviated from its long-term mean of

11.7 percent but the most satisfying

statistic here is that the nifty has had

only seven negative years in the last 25

years

which speaks a lot of its utility as a

long-term wealth building tool

now while this analyze return of 11.7

percent helps us a more practical way of

determining performance over longer

durations is to be able to do so using

the sip mode after all investors like

you and me we just don't put in some

lumps and money in mutual funds and

forget about it for the next 25 years we

continue to invest and mostly on a

monthly basis and if one had invested 10

000 rupees in the nifty every single

month from 1996 onwards here's how the

journey would have been

the first few years would have been a

bit frustrating on account of the

dot-com bubble and it won't be until

june of 2003 when your invested amount

would actually start showing some sort

of return

in sharp contrast the period from mid

2003 until the end of 2007 was the

rainmaker period for the nifty and your

corpus would have zoomed from 9 lakhs to

64 lakhs in just four and a half years

but what goes up needs to come down and

what followed next was a period of deep

correction quick recovery and flat

markets which meant the nifty took the

next five and a half years to register a

new all-time high which happened

somewhere around august of 2013

and since then the nifty has seen the

most amazing of market rallies with rsip

corpus swelling to 2.07 crores as of

june 2021

the point is that the nifty and for that

matter any stock market would have

periods of ups and downs

and even this bull run has seen some

hiccups like the 2015 chinese market

meltdown demonetization in november 2016

and of course a massive 1100 points drop

on march 23 2020 due to the covet

pandemic

but the fact remains that a 25 year old

sip on the nifty motored along very well

through these peaks and troughs and your

30 lakh investment would have delivered

a wealth corpus of 2.07 crores at a cagr

of 12.8 percent now the past is the past

and the real question is what can we

expect from the nifty in the coming 25

years

well firstly one can expect the future

to be even bigger with sectors like

e-commerce autonomous vehicles logistics

artificial intelligence robotics defense

renewable energy all rising to create

the biggest companies of our times

and secondly from a numbers perspective

the indian gdp is expected to grow at

around five and a half percent over the

next 25 years

this growth trajectory would make india

an economic powerhouse by 2050 with 15

percent of the world's gdp and one of

the biggest representation of this power

will continue to be the nifty 50.

[Music]

there are two ways to invest in the

nifty one you can buy stocks in the same

percentage as its composition in the

nifty or option two is that you can

invest in an index mutual fund that

tracks the nifty fifty

the first approach stock buying one is

not really made for the average retail

investor it is expensive it is hectic

and it's pretty complicated

for example say i want to invest 10 lakh

rupees in buying all the stocks that are

there in the nifty and in the same ratio

now the weightage for one of the nifty

stocks that is shri cement is 0.4

percent which comes to 4 000 rupees but

the problem we face here is that at the

time of recording this video

one share of sri cement is priced at 28

000 rupees which kind of puts us in a

soup because fractional ownership of

shares is not allowed in india which

means we cannot buy one seventh of a sri

cement share to stay within our 4000

rupee limit

so we have to buy zero shares of shea

cement or one entire share of sri cement

none of which helps us in our objective

of recreating the index

there are a few more problems like this

when using the direct equity route and

this is why most investors prefer to use

etfs or index funds to invest in the

nifty 50.

an index fund is a mutual fund which has

only one job that is to replicate the

respective benchmark so a nifty 50 index

would look to replicate the nifty 50 and

therefore will have a portfolio similar

to the nifty 50.

i specifically use the word similar and

not exact because as we have in our

tracking error video seen that there is

always some small variance between the

index movement and the index funds

movement but net net a nifty index fund

will have the same 50 stocks which are

there in the nifty

they will be almost in the same

proportion and the performance of the

index fund will be similar to the

nifty's price movement

more recently consumer interest in

investing via index funds has grown in

india and there are many reasons for

that

firstly you can start your investment on

the etimony app at just 500 rupees a

month and even 100 rupees with some

schemes

secondly these funds have an sip

facility and we discussed earlier in

this video how great wealth can be

generated with disciplined investing

thirdly index funds don't need active

management which keeps the expense ratio

really low

and finally index funds follow a

well-defined system which means there

are no human biases with stock selection

and one doesn't need to worry about

specifics like rebalancing etc

the system does everything for you and

all you need to do is to be patient and

enjoy the ride and with this we come to

the end of this video

if you like this presentation then do

tap on that like button and don't forget

to share this video with your friends

and family members who are just getting

started with investing

thank you for your time and i look

forward to catching up with you next

week with another insightful video until

then

mutual fund investments are subject to

market risks read all scheme related

documents carefully