What is Nifty and its Importance? A Short Guide To Get You Started

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– By Ishmohit Arora

What is NIFTY?

Nifty is a basket of 50 stocks operated by National Stock Exchange. The term Nifty is derived from the combination of National and Fifty. You must be wondering that how the Nifty is computed?

Nifty 50 is computed based on free float market capitalization method, wherein the level of the index reflects total market value of all the stocks in the index.  Following are the sectors in Nifty-

  • FINANCIAL SERVICES 36.13
  • ENERGY 15.16
  • IT 13.81
  • CONSUMER GOODS 10.83
  • AUTOMOBILE 8.20
  • CONSTRUCTION 3.66
  • METALS 3.46
  • PHARMA 3.43
  • CEMENT & CEMENT PRODUCTS 1.93
  • TELECOM 1.63
  • MEDIA & ENTERTAINMENT 0.60
  • SERVICES 0.58
  • FERTILISERS & PESTICIDES 0.57

Following is the weightage of stocks in India:

  • Reliance Industries Ltd. 9.46
  • HDFC Bank Ltd. 9.19
  • Housing Development Finance Corporation 6.77
  • Infosys Ltd. 5.94
  • I T C Ltd. 5.92
  • Tata Consultancy Services Ltd. 4.83
  • ICICI Bank Ltd. 4.78
  • Kotak Mahindra Bank Ltd. 3.72
  • Larsen & Toubro Ltd. 3.66
  • Hindustan Unilever Ltd. 2.76

These stocks form the biggest part of NIFTY.

Now you must be wondering – what is the importance of NIFTY? 

If we take a look at the larger picture, NIFTY is a barometer or reflection of the Indian Economy. As they say

“Next generation is always going to lead a better life”.

The amount of consumption of goods and services increases by every passing generation. Just think about it, your parents weren’t using mobile phones, internet (BookMyShow to book tickets, which is owned by Reliance). So with every passing generation the consumption aspect increases. This fuels growth in the economy. Since, NIFTY is a reflection of the economy. Nifty is bound to increase.

For example– If you buy a Royal Enfield (RE) you’re indirectly contributing to Nifty, as Eicher which owns RE is a part of Nifty.

“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” – George Soros

Why most of the people fail in stock markets is that they want it to be exciting, they check their portfolios on a second by second basis. They fail to understand that their financial well-being lies in long term investing done on the basis of achieving your financial goals.

Experiment For You

Before ending , I would like you to do an experiment. Just open the Google search bar and type in Nifty. After typing in Nifty, just make the time frame MAX. You’ll get to know what I am talking about!

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