Share Market is a platform in which people earning millions by investing. Whenever you have heard about the stock market, you must have heard about Nifty and Sensex as well. While telling the stock market news in TV channels, it is said that the Nifty declined, the Nifty soared today and closed with so many points. But have you ever wondered what is the connection of the stock market with the Nifty? Do you know what is this Nifty and how is it different from Sensex? Everything you want to know.
I had given complete information about Stock Market or Share Market in my previous article. In which I also mentioned Nifty and Sensex but did not mention in detail.
Today I will tell you about Nifty in this article in detail. Like what is Nifty, how does it work, how is it different from Sensex, what is the connection of Nifty to the economy of our country etc.
What is Nifty?
Nifty’s full form is National Stock Exchange Fifty i.e. National Stock Market Fifty. It is a word consisting of two words National and Fifty. It is also called NIFTY 50.
But usually most people call it by the name of Nifty and know it. It is an important benchmark of the Nifty National Stock Exchange of India.
50 in full form of Nifty means top 50 companies of National Stock Exchange. That is, Nifty is the index of the top 50 companies of the NSE.
As I told you above, about 2000 companies are registered on the National Stock Exchange, but there can be some problems in measuring the price of such companies.
That is why the top 50 companies were selected from 12 different sectors, which can give information about the movement of the stock market. Under the Nifty, the functions, prices of 50 companies are verified.
When did nifty start?
Nifty was launched in 1994. Nifty is considered the most important stock index of India. We are aware of the slowdown and sharpness of the share market only through the Nifty.
The 50 companies selected in the Nifty are large companies in their respective sectors and the market capitalization of these listed companies is about 60 percent of the entire market.
Whenever the shares of these listed companies start selling more, the Nifty rate picks up and when the shares start falling, the Nifty rate starts to slow down. This process shows how the stock market is doing now.
What does NIFTY work for?
Nifty’s job is to provide us with information about the 50 companies and market movements that the Index Committee selects for the Nifty.
This shows us how the companies that are listed, how the company is working. If a company is doing good work, then it directly affects the price of the company’s shares.
And then the prices of the shares of that company increase and when the prices of the shares of a listed company go up or go up, due to this the Nifty also increases.
In the same way, if the companies listed in the index are losing profit or not, then it also directly affects the price of the shares of that company and the price of shares starts to decrease.
Nifty and Economy
The Nifty has a direct and deep connection to the economy of our country India. See when the Nifty goes up, it is an indication that the big companies are profitable.
When the big companies of the country make capital gains, they will earn more money, they will also pay more taxes which will directly affect the economy of our country. The economy of our country will be strong.
Apart from this, whenever a foreign company thinks of investing in India, first of all it does a few years of Nifty checks in the country.
If the Nifty is declining, then the company guesses that the growth rate of the Indian market is low, then doing business here will not benefit and at the same time, if our market growth rate is found good, then foreign companies invest money.
With the increase in employment, the economy also gets stronger. So that’s why, along with understanding the movement of the entire stock market, we also get to know what effect it is having on our economy.
How does Nifty calculate?
It is important to know how the Nifty is calculated. Base Year 1995 and Base Value 1000 are used when calculating Nifty.
There are two terms you must know to calculate Nifty.
- Market capitalization
- Free Float Market Capitalization
Here, we tell you about Indono by doing a little experiment, so that you can understand it properly.
What is market capitalization?
Market capitalization is the price of any company. Which we multiply the current share price of the company by the number of available shares of the company.
Suppose the current one share of the company is valued at Rs 100 and the company has a total share of 1000. So the market capitalization of the company happened
- Market Capitalization – Total Number of Shares x Current Price of One Share
- 1000 X 100 = 100000 Rupees
What is Free Float Market Capitalization?
We also call Free Float Market Capitalization Open Market Share. These are open shares of the company then available for trading.
Explain that there are many types of investors in a company, including Promoters, then the shares they hold are not available for trading.
To calculate Free Float Market Capitalization, the current one share price of the company is multiplied by the shares that are available to buy and sell.
Suppose the current one share of the company is valued at Rs 100 and the company has a total of 1000 shares, of which 200 shares are with the promoters. So Free Float Market Capitalization happened –
Free Float Market Capitalization = Total Number of Shares Available for Trading x Current Price of One Share
- 1000-200 = 800, 800 x 100 = 8000
To calculate Nifty, we add the Free Float Market Capitalization of the listed 50 companies and multiply it by the 1995 Nifty Index 1000 and divide by the market cap.
- Nifty = Sum of Free Float Capitalization x Index Value In 1995 / Market Cap In 1995
Remember that the index value here is 1000.
You understand this by an example.
Suppose two companies are A and B,
- A has 1000 shares out of which 600 is available for trading and the price of each share is fixed at Rs 50.
- B has 2000 total shares and is 1000 available for trading and the price of each share is 100 rupees.
- Market Capital of Company A = 1000 * 50 = 50,000
Market Capital of Company B = 2000 * 100 = 200,000
- Free-Float Factor of Company A = 1000/600 = 0.60
Company B’s Free-Float Factor = 2000/100 = 0.50.
- Total Free Float Market Capital Of The Index = (50000 * 0.60) + (200000 * 0.50) = 130000.
So this happened to both the free-float market capital, now let’s take out the Nifty.
Now suppose that the Index for Base Year 1995 was 1000 and the market cap was 5000.
- Nifty = Sum of Free Float Capitalization x Index Value In 1995 / Market Cap In 1995.
- Nifty = 130000 * 1000/5000 = 26,000.
Benefits of Nifty?
Nifty has many benefits, not one, of which we are talking about some important benefits here.
With the Nifty we can know the state of the country’s economy.
Stock market information is available from Nifty. That is, we can check the performance of NSE.
We also get an advantage in business because by understanding the Nifty, we can know whether we should invest or not.
What is the difference / difference between Nifty and Sensex?
Both are largely identical and both have stock indexes. But there is a slight difference between the two. Like,
- Nifty falls under NSE and Sensex is under Bombay Stock Exchange.
- Shares of 50 companies are listed in Nifty and 30 companies are listed in Sensex.
- Since Nifty has 50 companies listed, it is considered more reliable.
But both of them have the same work, they are both indices and the real purpose of both is to give information about the state of the stock market.