NIFTY 50

Index Methodology

March 2017

Contact:
Email: [email protected]
Tel: +91 22 26598386
Address: Exchange Plaza, Bandra Kurla Complex,
Bandra (East), Mumbai- 400 051(India)
Contents

Introduction ................................................................................................................................................... 3
Eligibility Criteria ......................................................................................................................................... 4
Index Construction ........................................................................................................................................ 6
Index Maintenance ........................................................................................................................................ 7
Index Governance ......................................................................................................................................... 9
Index Policy .................................................................................................................................................. 9
Index Calculation formula: ......................................................................................................................... 10
NIFTY 50 Index variants: ........................................................................................................................... 11
Index Dissemination ................................................................................................................................... 14

2
Introduction

The NIFTY 50 is the flagship index on the National Stock Exchange of India Ltd. (NSE). The Index
tracks the behavior of a portfolio of blue chip companies, the largest and most liquid Indian securities. It
includes 50 of the approximately 1600 companies listed on the NSE, captures approximately 65% of its
float-adjusted market capitalization and is a true reflection of the Indian stock market.

The NIFTY 50 covers major sectors of the Indian economy and offers investment managers exposure to
the Indian market in one efficient portfolio. The Index has been trading since April 1996 and is well
suited for benchmarking, index funds and index-based derivatives.

The NIFTY 50 is owned and managed by India Index Services and Products Ltd. (IISL). IISL is India’s
first specialized company focused on an index as a core product.

Highlights

The NIFTY 50 is a 50 stock, float-adjusted market-capitalization weighted index for India. It is used for a
variety of purposes, such as benchmarking fund portfolios, index based derivatives and index funds.

The NIFTY 50 is derived from economic research and is created for those interested in investing and trading
in Indian equities.

Market Representation. The NIFTY 50 stocks represent about 65% of the total float-adjusted market
capitalization of the National Stock Exchange (NSE).

Diversification. The NIFTY 50 is a diversified index, accurately reflecting the overall market. The
reward-to-risk ratio of NIFTY 50 is higher than other leading indices, offering similar returns but at
lesser risk.

Liquidity. Market impact cost is the best measure of the liquidity of a stock. It accurately reflects the
costs faced when actually trading an index. For a stock to qualify for inclusion in the NIFTY 50, it has to
reliably have market impact cost below 0.50 %, when doing NIFTY 50 trades of Rupees (Rs) 2 crores.

Trading in derivative contracts based on NIFTY 50

The National Stock Exchange of India Limited (NSE) commenced trading in derivatives with index
futures on June 12, 2000. The futures contracts on the NSE are based on the NIFTY 50. The exchange
introduced trading on index options based on the NIFTY 50 on June 4, 2001. Additionally, exchange traded
derivatives contracts linked to NIFTY 50 are traded at Singapore Exchange Ltd. (SGX), Chicago Mercantile
Exchange Inc. (CME) and Osaka Exchange Inc. (OSE), Taiwan Futures Exchange (TAIFEX).

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Eligibility Criteria

Selection of the index set is based on the following criteria:

Liquidity:
For inclusion in the index, the security should have traded at an average impact cost of 0.50 % or less
during the last six months, for 90% of the observations for portfolio of Rs. 2 crores.

Impact cost is the cost of executing a transaction in a security in proportion to its index weight, measured
by market capitalization at any point in time. This is the percentage mark-up suffered while buying/selling
the desired quantity of a security compared to its ideal price -- (best buy + best sell)/2.

Float -Adjusted Market Capitalization:

Companies eligible for inclusion in the NIFTY 50 must have at least twice the float-adjusted market
capitalization of the current smallest index constituent.

Domicile:
The company must be domiciled in India and trade on the NSE.

Eligible Securities:
All common shares listed on the NSE (which are of equity and not of a fixed income nature) are eligible
for inclusion in the NIFTY 50 index. Convertible stock, bonds, warrants, rights, and preferred stock that
provide a guaranteed fixed return are not eligible.

Differential Voting Rights:

Equity securities with Differential Voting Rights (DVR) are eligible for inclusion in the index subject to
fulfilment of criteria given below:

 Market capitalisation criteria is measured at a company level by aggregating the market capitalisation
of individual class of security meeting the liquidity criteria for the respective index
 Free float of DVR equity class share should be at least 10% of free-float market capitalization of the
company (voting equity class share and DVR equity class share) and 100% free-float market
capitalization of last security in respective index
 It should meet liquidity criteria applicable for the respective index
 Upon inclusion of DVRs in index, the index may not have fixed number of securities. For example, if
DVR of an existing NIFTY 50 constituent is included in NIFTY 50, the NIFTY index will have 51
securities but continue to have 50 companies
 It is possible that the DVR is eligible for inclusion in the index whereas the full voting rights security
class is ineligible. In such scenario, the DVRs shall be included in the index irrespective of whether full
voting rights share class is part of index

F&O criteria for stocks in NIFTY 50: In order to become eligible for inclusion in NIFTY 50, a stock
must be available for trading in NSE’s Futures & Options segment.

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Other Variables:
A company which comes out with an IPO is eligible for inclusion in the index if it fulfills the normal
eligibility criteria for the index - impact cost, float-adjusted market capitalization for a three-month period
instead of a six-month period.

The company’s trading frequency should be 100% in the last six months.

Timing of Changes:
The index is reviewed semi-annually, and a four-week notice is given to the market before making any
changes to the index constituents.

Additions:
The complete list of eligible securities is compiled. After that, the liquidity (impact cost) and float -
adjustment filters are applied to them, respectively. The top ranking companies form the replacement
pool. The top stocks, in terms of size (float-adjusted market capitalization) are, then, identified for
inclusion in the index from the replacement pool.

Deletions:
Stocks may be deleted due to mergers, acquisitions or spin-offs. Otherwise, as noted above, twice a year
a new eligible stock list is drawn up to review against the current constituents. If this new list warrants
changes in the existing constituent list, then the smallest existing constituents are dropped in favor of the
new additions.

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Index Construction
Approaches
The NIFTY 50 is computed using a float-adjusted, market capitalization weighted methodology*,
wherein the level of the index reflects the total market value of all the stocks in the index relative to a
particular base period. The methodology also takes into account constituent changes in the index and
corporate actions such as stock splits, rights issuance, etc., without affecting the index value.

* Beginning June 26, 2009, the NIFTY 50 is being computed using float-adjusted market capitalization weighted method, wherein the level of
index reflects the float-adjusted market capitalization of all stocks in the Index.

Currency of Calculation
For the NIFTY 50, all prices are in Indian rupees.

Base Date
The base period for the NIFTY 50 index is November 3, 1995, which marked the completion of one year
of operations of NSE's Capital Market Segment. The base value of the index has been set at 1000, and a
base capital of Rs 2.06 trillion

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Index Maintenance
Rebalancing
Index maintenance plays a crucial role in ensuring the stability of the index, as well as in meeting its
objective of being a consistent benchmark of the Indian equity markets.

IISL has constituted an Index Policy Committee, which is involved in the policy and guidelines for
managing the NIFTY 50. The Index Maintenance Subcommittee makes all decisions on additions and
deletions of companies in the index.

Changes in the index level reflect changes in the market capitalization of the index which are caused by
stock price movements in the market. They do not reflect changes in the market capitalization of the
index, or of the individual stocks, that are caused by corporate actions such as dividend payments, stock
splits, distribution to shareholders, mergers or acquisitions.

When a stock is replaced by another stock in the index, the index divisor is adjusted so the change in
index market value that results from the addition and deletion does not change the index level.

Calculation Frequency. The index is calculated real-time on all days that the National Stock Exchange of
India is open.

Corporate Actions and Share Updates

Maintaining the NIFTY 50 index includes monitoring and completing the adjustments for company
additions and deletions, share changes, stock splits, stock dividends etc. Some corporate actions, such as
stock splits and stock dividends, require simple changes in the common shares outstanding and the stock
prices of the companies in the index. Other corporate actions, such as share issuances, change the market
value of an index and require a divisor adjustment to prevent the value of the index from changing.

Adjusting the divisor for a change in market value leaves the value of the index unaffected by the
corporate action. This helps keep the value of the index accurate as a barometer of stock market
performance, and ensures that the movement of the index does not reflect the corporate actions of the
companies in it. Divisor adjustments are made after the close of trading and after the calculation of the
closing value of the index. Any change in the index divisor also affects corresponding sub-indices and
divisors. Each sub-index is maintained in the same manner as the headline index.

Corporate actions such as splits, stock dividends, rights offerings, and share changes are applied on the ex-
date.

All singular instances of share changes arising out of additional issue of capital, such as ESOPs, QIPs,
ADR/GDR issues, private placements, warrant conversions, and FCCB conversions, which have an
impact of 5% or more on the free-float market capitalization of the security, are implemented as soon as
possible after providing a five days’ notice period. Share repurchase (buyback) also have the same
rules as applicable to share changes.

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Changes entailing less than 5% impact on the free-float market capitalization are accumulated and
implemented on quarterly basis from February, May, August and November effective after the expiry of
the F&O contracts.

Investible Weight Factors (IWFs):

IWF as the term suggests is a unit of floating stock expressed in terms of a number available for trading
and which is not held by the entities having strategic interest in a company. Higher IWF suggest greater
number of shares held by the investors as reported under public category within a shareholding pattern
reported by each company.

The IWFs for each company in the index are determined based on the public shareholding of the
companies as disclosed in the shareholding pattern submitted to the stock exchanges on quarterly basis.
The following categories are excluded from the free float factor computation:

 Shareholding of promoter and promoter group

 Government holding in the capacity of strategic investor
 Shares held by promoters through ADR/GDRs.
 Strategic stakes by corporate bodies
 Investments under FDI category
 Equity held by associate/group companies (cross-holdings)
 Employee Welfare Trusts
 Shares under lock-in category

Example: For XYZ Ltd.

Shares %
Total Shares 1,00,00,000 100.00

Shares %
Shareholding of promoter and promoter group 19,75,000 19.75
Government holding in the capacity of strategic investor 50,000 0.50
Shares held by promoters through ADR/GDRs. 2,50,000 2.50
Equity held by associate/group companies (cross-holdings) 12,575 0.13
Employee Welfare Trusts 1,45,987 1.46
Shares under lock-in category 14,78,500 14.79

IWF = [1,00,00,000 – (19,75,000 + 50,000 +2,50,000 +12,575 +1,45,987 +14,78,500)] / 1,00,00,000. = 0.61

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Index Governance

Index Committee
A professional team at IISL manages the NIFTY 50. There is a three-tier governance structure
comprising the board of directors of IISL, the Index Policy Committee, and the Index Maintenance
Subcommittee. IISL has constituted the Index Policy Committee, which is involved in the policy and
guidelines for managing the NIFTY 50. The Index Maintenance Sub-committee makes all decisions on
additions and deletions of companies in the Index. The NIFTY 50 has fully articulated and professionally
implemented rules governing index revisions, corporate actions, etc. These rules are carefully
considered, using Indian market conditions, to dovetail with operational problems of index funds and
index arbitrageurs.

Index Policy
The NIFTY 50 uses transparent, researched and publicly documented rules for index maintenance. These
rules are applied regularly to manage changes to the index. Index reviews are carried out semi-annually to
ensure that each security in the index fulfills eligibility criteria.

Announcements
All index-related announcements are posted on the NSE Web site. Changes impacting the constituent list
are also posted on the Web site. Please refer to the NSE Web site at www.nseindia.com

Holiday Schedule
For the calculation of indices, the IISL follows the official holiday schedule. A complete holiday schedule
for the year is available on the NSE Website. Please refer website at www.nseindia.com

Real-Time Calculation
The indices are calculated real-time whenever there is a change in price.
A security is traded in full accordance with the present methodology. The best bid price of a security exceeds
the last calculated price of the security. The best ask price of a security is less than the last calculated price of
the security.

Data Source
Prices of index constituents are sourced from NSE

Index Precision
The level of precision for index calculation is as follows:

 Shares outstanding are expressed in units

 Investible weight factors (IWFs) are expressed in two decimals
 Float-adjusted market capitalization is stated to two decimal places
 Index values are disseminated up to two decimal places

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Index Calculation formula:
Price Index Calculations:
The NIFTY 50 is computed using the free-float market capitalisation weighted method wherein
the level of the Index reflects the total market value of all the stocks in the Index relative to the
base period November 3, 1995. The total market cap of a company or the market capitalisation is
the product of market price and the total number of outstanding shares of the company.
Market Capitalization = Shares outstanding * Price
Free Float Market Capitalization = Shares outstanding * Price * IWF
Index Value = Current Market Value / Base Market Capital * Base Index Value (1000)
Base market capital of the Index is the aggregate market capitalisation of each scrip in the Index
during the base period. The market cap during the base period is equated to an Index value of 1000
known as the base Index value.

Total Return Index Calculation:

The NIFTY 50 reflects the return one would get if an investment is made in the index portfolio.
As the NIFTY 50 is computed in real- time, it takes into account only the stock price movements.
However, the price indices do not consider the return from dividend payments of index constituent
stocks. Only the capital gains and losses due to price movement are measured by the price index.
In order to get a true picture of returns, the dividends received from the index constituent stocks
also need to be included in the index movement. Such an index, which includes the dividends
received, is called the total return index. The total return index reflects the returns on the index
from stock prices fluctuation plus dividend payments by constituent index stocks.

The total return version of the NIFTY 50 index is also available, which assumes dividends are
reinvested in the index on the ex-date. Corporate actions like Dividend announcement do not
require any adjustment in the normal price index (other than special dividend).

A separate series of index i.e. Total Returns Index (TR) is calculated which shows the returns on
Index portfolio, inclusive of dividends.
(𝑇𝑜𝑑𝑎𝑦 ′ 𝑠 𝑃𝑅 𝐼𝑛𝑑𝑒𝑥 + 𝐼𝑛𝑑𝑒𝑥𝑒𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑)
𝑻𝑹 𝑰𝒏𝒅𝒆𝒙 = 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑇𝑅 𝑖𝑛𝑑𝑒𝑥 ∗ [1 + ( − 1) ]
𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑃𝑅 𝐼𝑛𝑑𝑒𝑥

Index dividend for the day ‘t’ = Total Dividends of the scrips in the Index / Index divisor for the
day

Total dividends of scrips in the Index = Σ (Dividend per share * Modified index shares)

Modified index shares = Total outstanding shares * IWF * Capping Factor (if applicable)

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NIFTY 50 Index variants:

1. NIFTY50 USD:
NIFTY50 USD, a dollar linked variant of NIFTY 50 index has been constructed as an instrument
for measuring returns on their equity investment in the US dollar terms. NIFTY50 USD is NIFTY
50, measured in dollars.

Index value calculation:

Closing value of NIFTY 50 * Exchange rate as on base date/ Exchange rate for the day

Base date of NIFTY50 USD is same as NIFTY 50 i.e. November 3, 1995 and the base index value
is 1000 points

Exchange rate as on base date: 34.65

Effective April 3, 2017, WM/Reuters 4 pm FX benchmark USD-INR rate on a daily basis is

considered in place of ‘INR-USD’ reference rate as published by Reserve Bank of India for
calculation of daily index value.

2. NIFTY50 Dividend Points:

The NIFTY 50 Dividend Points is a running total of dividend points of the securities forming part
of NIFTY 50 Index. It is worth noting that the NIFTY 50 Dividend Points is a passive representation
of annual index dividend points. It is not an active index of stocks representing a quantitative
dividend based investment strategy.

The index measures the total ordinary dividends paid in the securities forming part of the underlying
index since the previous rebalancing date. Indexed dividend of NIFTY 50 Index are dividends paid
by index constituents expressed in terms of the level of NIFTY 50 Index.

The NIFTY50 Dividend Points resets to zero every year after the close of the settlement of
exchange traded derivative contracts linked to NIFTY 50 Index in the month of March every year
(normally the last Thursday in March). It is done to coincide with the expiry of exchange traded
derivative contracts linked to NIFTY 50 Index for the month.

The formula for calculating the dividend index on any date (t) for the NIFTY 50 Index is:

Dividend Index (t) = Previous Dividend Index Value (t-1) + Indexed Dividend (t day)

The indexed dividend of the NIFTY 50 Index is calculated by taking the summation of dividend
payout (adjusted for free float) specified by index constituents divided by the index divisor on ex-
dividend date.

3. NIFTY50 PR 1x Inverse:
The NIFTY50 PR 1x Inverse index aims to provide inverse return of its underlying index. A broader
index provides good exposure to an economy, an inverse index on a broader index will provide the
desired exposure when the investor is bearish on the markets.

 NIFTY50 PR 1x Inverse Index provides the investor an opportunity to create a position

which gives inverse (opposite) returns as compare to NIFTY 50 PR Index.

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  The index is designed to provide the inverse performance of the NIFTY 50 PR, representing
a short position in the index

Index value calculation:

NIFTY50 PR 1x Inverse Index Value =

Previous day’s NIFTY50 PR 1x Inverse Index Value * (1+ NIFTY 50 PR 1x Inverse Index Return)

NIFTY50 PR 1x Inverse Index Return =

-1*((Current NIFTY PR Index Value/previous day NIFTY 50 PR Index Value)-1) + (2*(previous
days CBLO rate /360)*(diff. in no. of days between today and previous trading day))-(previous
days CBLO rate /360)*(diff. in no. of days between today and previous trading day))

4. NIFTY50 PR 2x Leverage
NIFTY50 PR 2x Leverage Index is designed to generate multiple time return of the underlying
index in situations where the investor borrows funds to generate index exposure beyond his/her
cash position.
 NIFTY50 PR 2x Leverage Index seeks twice the index return on a daily basis
 Index is designed to provide magnified exposure to NIFTY 50 PR Index value

Index value calculation:

NIFTY50 PR 2x Leverage Index Value =
Previous day’s NIFTY50 PR 2x Leverage Index Value * (1+ NIFTY50 PR 2x Leverage Index
Return)

NIFTY50 PR 2x Leverage Index Return =

2*((Current NIFTY 50 PR Index Value/previous day NIFTY 50 PR Index Value)-1)- (previous
days CBLO rate /360)*(diff. in no. of days between today and previous trading day))

5. NIFTY50 TR 1x Inverse
The NIFTY50 TR 1x Inverse index tries to provide inverse return of its underlying index. A broader
index provides good exposure to an economy, an inverse index on a broader index will provide the
desired exposure when the investor is bearish on the markets.
 NIFTY50 TR 1x Inverse Index provides the investor an opportunity to create a position
which gives inverse (opposite) returns as compare to NIFTY 50 TR Index
 The index is designed to provide the inverse performance of the NIFTY 50 TR, representing
a short position in the index

Index value calculation:

NIFTY50 TR 1x Inverse Index Value =
Previous day’s NIFTY50 TR 1x Inverse Index Value * (1+ NIFTY50 TR 1x Inverse Index Return)

NIFTY50 TR 1x Inverse Index Return =

-1*((Current NIFTY 50 TR Index Value/previous day NIFTY 50 TR Index Value)-1) +
(2*(previous days CBLO rate /360)*(diff. in no. of days between today and previous trading day))-
(previous days CBLO rate /360)*(diff. in no. of days between today and previous trading day))

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6. NIFTY50 TR 2x Leverage
The NIFTY50 TR 2x Leverage Index is designed to generate multiple time return of the underlying
index in situations where the investor borrows funds to generate index exposure beyond his/her
cash position.

 NIFTY50 2x Leverage Index seeks twice the index return on a daily basis
 Index is designed to provide magnified exposure to NIFTY 50

Index value calculation:

NIFTY50 TR 2x Leverage Index Value =
Previous day’s NIFTY50 TR 2x Leverage Index Value * (1+ NIFTY50 TR 2x Leverage Index
Return)

NIFTY50 TR 2x Leverage Index Return =

2*((Current NIFTY 50 TR Index Value/previous day NIFTY 50 TR Index Value)-1) - (previous
days CBLO rate /360)*(diff. in no. of days between today and previous trading day))

13
Index Dissemination

Tickers
Index Bloomberg Reuters
NIFTY 50 NIFTY .NSEI

Web site
Daily index values, index constituents, methodology, and special announcements are available on the NSE
Web site at www.nseindia.com.

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