How is NIFTY 50 Calculated?

To arrive at the value of the NIFTY 50 index, the current market cap of all the stocks that are part of NIFTY 50 is divided by the Market Cap of the base period. The companies included in the index are chosen based on their market capitalisation and liquidity. The value of NIFTY 50 is calculated using the free float market capitalisation method.

The current market cap is the weighted market cap of all 50 companies. It is calculated by multiplying free float shares with the market price of the share. Free float shares represent the total number of outstanding shares, excluding those held by promoters, government, trusts, etc.

Each of the 50 stocks in NIFTY 50 does not have an equal weightage in the NIFTY 50 index. This is because companies with a higher free-float market cap naturally have higher weightage in the index. For instance, Reliance Industries, whose market cap on May 2024 is around Rs. 20 lakh crore, has a slightly higher weight in the index against HDFC Bank, whose market cap is around Rs. 12 lakh crore.

The base date for NIFTY 50 is taken as 3rd November 1995, with an assigned base value of 1000 and a corresponding base market capital of Rs. 2.06 Trillion or 2.06 lakh crores.

The formula for the NIFTY 50 calculation: 

Index Value = (Current Market Cap / Base Market Capital) x 1000

Here, The current market cap is the weighted market cap calculated for the index

Base market capital is the weighted market cap of all 50 index companies in the base period and 1000 is the value of the NIFTY 50 index in the base date

How Are Stocks Selected To Be Part NIFTY 50? There are certain sets of rules that decide which 50 stocks should be part of the NIFTY 50 index. They are as follows

1. The primary criteria to be a part of NIFTY 50 is that a company must be listed on the National Stock Exchange (NSE). Also, the stocks of a company should be available for trading in NSE’s Futures & Options segment. If the company is not listed and traded on NSE, it cannot be a part of NIFTY 50.
2. From the companies listed on NSE, the top 50 large-cap companies are selected based on their free-float market capitalization. The free-float market cap is calculated by multiplying a company’s stock price with the number of shares readily available in the market. For example, if a company has 10 lakh shares readily available in the market and the price per stock is Rs. 50, then the company’s market capitalization is Rs. 500 lakh or 5 crores. So top 50 companies based on their market capitalization is chosen.
3. Another crucial factor for a stock to be considered for addition to NIFTY 50 is its liquidity. It means that the stocks must be easy to buy and sell, and the trading volume of such stocks must be high. As per NSE requirements, the company’s stocks must have a 100% trading volume over the last 6 months in order to qualify in this regard or it must be trade daily in the last 6 months.

The 50 companies in the NIFTY 50 index are not fixed. The NSE does a rebalancing on a semi-annual basis in June and December every year. Through the rebalancing process, the NIFTY 50 index removes stocks that would have fallen in market cap or would have undergone suspension or delisting. The removed stocks are then replaced by emerging stocks that would have increased in market cap. This rebalancing process automatically increases the exposure of NIFTY 50 to emerging stocks and sectors.