The NIFTY 50 Index is a well-diversified portfolio of 50 of India’s largest and most liquid companies. These fifty companies capture 66.8% of the float-adjusted market capitalization from a universe of 1,600+ listed companies on the NSE.
There are different types of indices in India. These include Nifty 50, Nifty 500, Nifty Midcap 50, NIFTY Auto Index, NIFTY Bank Index, NIFTY Pharma Index etc.
The creation of an Index serves multiple purposes such as –
- acting as the primary economic indicator
- provides a historical comparison point and
- the development of financial products such as Index Funds, Index Futures and Index Options.
For a comprehensive understanding of different Index categories and constituents that are currently there in India, do read my comprehensive article on the subject.
What is Nifty 50?
The Nifty 50 Index was launched on April 22, 1996 with fifty stocks. The Index is used for benchmarking fund portfolios, launching index funds and index-based derivatives.
Since inception, the index has delivered annual price returns of 11.05% and annual total returns of 13.04%.
The market capitalization of Nifty 50 stocks on May 7, 2019 was ₹83,07,175 crores (or USD 1.18 trillion).
So, an index seems really simple.
Can an index really help me with wealth creation?
Indices can be used in a smart way to generate even more wealth for you. I have outlined a strategy based on passive Index fund investing with an annual rebalancing feature. This simple-to-execute strategy, tested over 14 years of data, helps you make an additional 1.7% over the regular Index fund SIP performance.
Companies in Nifty 50
The Nifty 50 Index is reconstituted twice a year based on the last six months data ending January and July. In the last update earlier this year (Feb 2019), Britannia Industries entered the index by replacing HPCL. Now, HPCL moves to Nifty Next 50 Index.
OK, so what’s the latest list?
The companies forming the Nifty 50 in May 2019 are available in the table below.
One can say that the Nifty 50 is a true reflection of the state of the general economy. This index covers the major sectors of the Indian economy.
Today India’s market capitalization is USD 2.12 trillion. This is bigger than Germany’s market capitalization which is Europe’s biggest economy. The Nifty 50 constitutes over half of India’s market capitalization.
Oh, thats big!
As of May 2019, the composition of sectors is –
- Financial Services (11 companies; 22% of stocks)
- Energy (7 companies; 14% of stocks)
- Automobile (6 companies; 12% of stocks)
- Consumer Goods (5 companies)
- Information Technology (5 companies)
- Metals (5 companies)
- Pharma (3 companies)
- Telecom (2 companies)
- Cement (2 companies)
- Construction (1 company)
- Fertilizers (1 company)
- Services (1 company)
- Media (1 company)
The composition from a % of market capitalization shows a skewness towards financial services companies. Afterall, 22% of companies representing the financial sector hold over 37% of the the index’s capitalization. Other notable sectors are Energy, IT and Consumer Goods.
Market Capitalization of Nifty 50 stocks
Note that the market capitalization used here is the free-float market capitalization. This is different from total market capitalization which is based on all outstanding shares.
Price Earning Ratio or PE Ratio of Nifty 50 stocks
The PE Ratio of Nifty 50 index is a oft-searched topic since the index stands as a true representative of the state of the stock markets.
Got it. So, how does this help?
People yearn to buy more equities when the PE Ratio is low. And often redeem/sell or hold further purchases when the ratio is high.
I have an article on the index’s price earning ratio where you can check out today’s Nifty 50 PE ratio aswell.
Index based Mutual Funds
The key difference between active and index funds is on the expense ratios where the differential is as high as 0.5%. With performance being the same or better, there is a good positive gap in returns from index funds.
Here are some articles you can read to get better details on financial and stock metrics