Nifty 50
For a variety of reasons, the stock market has occupied prominent space in the news over the last year and a half. First, many people were surprised that, despite the economic peril caused by the world coming to a halt, the stock markets as a whole, particularly in India, were relatively unaffected.
Alternatively, after the initial ‘fear of the unknown state’ faded from the country’s atmosphere, the markets began to rally, with multiple benchmarks reaching uncharted highs and companies taking advantage of the stock market gold rush to file for a flurry of IPOs, including Zomato, Aditya Birla Sunlife AMC, and, most recently, the highly coveted Paras Defence and space technologies limited.
The SENSEX, NIFTY50, NIFT100, NIFTY200, and so on and so forth are some of these benchmarks. The NIFTY50 is arguably the most popular of the lot, and if you look at its constituents, you are likely to recognize the majority of the stocks that comprise it.
Without giving too much away, NIFTY50 is the name given to the benchmark index listed on India’s National Stock Exchange (NSE). This is not, however, the first time the name “NIFTY” has been used in a stock market transaction. NIFTY FIFTY was the name given to large-cap stocks in the 1950s and 1960s US markets, which were considered blue-chip and a ‘buy only’ stock.
New Nifty 50
The NIFTY 50 is a benchmark index in the Indian stock market that is Weighted the common of fifty of the biggest Indian agencies indexed at the National Stock Exchange. It is one of India’s two main stock indices, the other being the BSE SENSEX. NSE Indices (previously known as India Index Services & Products Limited), a wholly-owned subsidiary of the NSE Strategic Investment Corporation Limited, owns and manages the Nifty 50. Until 2013, NSE Indices had a marketing and licensing agreement with Standard & Poor’s to co-brand equity indices.
The Nifty 50 index, one of Nifty’s many stock indices, was launched on April 22, 1996. The NIFTY 50 index has grown to be the largest single index. The NIFTY 50 index is a marketplace capitalization-weighted index primarily based totally on the loose float.
Initially, the index was calculated using a full market capitalization methodology. The computation was changed to a free-float methodology on June 26, 2009. The NIFTY 50 index’s base period is 3 November 1995, when the NSE’s equity market segment completed one year of operations. The index has a base value of 1000 and a base capital of 2.06 trillion.
When the NSE was founded in Mumbai in 1992, its management team needed a strong pole to anchor them in the financial ground in order to cement their position in the dematerialized market space. This was discovered in the form of the new NIFTY 50. When people ask “what is NIFTY 50” or “what is NIFTY 50,” they are referring to the NSE’s benchmark index.
The NIFTY 50 index is composed of 50 prominent stocks in the Indian stock market. The benchmark index, which includes Asian Paints and a slew of HDFC and Tata companies (Titan, for example), is regarded by investors as one of the most accurate litmus tests for the Indian stock markets.
Historic Growth
The domestic headline equity index Nifty50, which closed above the historic mark of 15,000 for the first time this week, doubled in just 220 days from its 52-week low of 7,511 on March 24. The index’s sharp recovery has been driven by a benign global liquidity backdrop, better containment of COVID-19 cases, a sharp recovery in corporate earnings, and a market-friendly Budget.
When the Nifty was launched in April 1996 at 1,107 points, November 1995 (1,000 points) was used as the base year. The Nifty took nearly 18 years to reach 7,000 points, while the next 8,000 points took only 6.8 years. The most agonizing journey was Nifty’s from 1,107 to 2K, which took a total of 2,167 trading days (almost 8.7 years).
Nifty has been through political instability in 1996-98, the Asian financial crisis, the dot com bubble, the global financial crisis, Taper Tantrum, and the most recent COVID pandemic in the last 25 years. The worst year for the Nifty was 2008, the year of the Global Financial Crisis (GFC) when it fell 52%. The best year was 2009 (returns of 76%) when the stock market recovered from the GFC lows and the UPA formed a stable government at the Centre.
Sectoral representation has changed over time, mirroring changes in the economy. When the Nifty began in 1996, it had no technology representation and was dominated by consumers, PSU banks, and other sectors such as oil and gas, etc. The Nifty 50 index surprised bulls on Monday, rising 1.51% to 18,129 by 11:39 a.m. IST. It comes as no surprise to those who have been following the SGX Nifty, which closed significantly higher on Friday.
All sectoral indices are up, and it appears that the bears were caught off guard after last week’s party. Monday’s 2-hour gain was sufficient to offset all of the previous week’s losses. So, what happened over the weekend? The rise in the Nifty was a result of what happened in the US market on Friday. Following the release of US Nonfarm payroll data, the Dow Jones increased by 2.31% or 700 points to 33,630.61, while the S&P 500 increased by 2.28% to 3,895.08.
NIFTY 50 is one of the most commonly heard names when discussing stock markets or having any market-related conversations, and for good reason. Conversations about market performance and the NIFTY 50 have similar tones, as the NIFTY 50 is merely a benchmark index for the Indian markets as a whole. While the index is a reliable predictor of market performance, it may not be so for overall economic performance.
This is because, unlike other countries such as the United States, which derives a large portion of its economic activity and economic value from its markets, Indian markets contribute only 13-15% of the country’s economy. As a result, it is possible that the NIFTY 50 is underperforming while the economy is outperforming.
Something like an agricultural boom (agriculture is still the most important sector in the country), which would benefit the economy as a whole, may not be specifically reflected in stock markets, except in the movement of companies with a large agricultural footprint. Again, the reverse is possible.
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