HOW CHANGE IN STOCK PRICES AFFECT THE NIFTY 50 INDEX?

The Nifty 50 index constitutes a well diversified collection of 50 stocks listed on the national stock exchange (NSE). The nifty 50 index was launched on April 1, 1996 and is owned and managed by NSE Indices Ltd. (formerly known as IISL). Nifty 50 is one of the world’s most actively traded index and it represents the weighted average of the 50 stocks constituting it. The movement of the nifty 50 index is determined by the changes in the price of these 50 stocks. However, the weightage of the each stock on the index is different. For instance, the stock with the highest weightage is Reliance Industries Ltd. which constitute about 11.89% of the weightage followed by Infosys Ltd. which constitute about 9.13%. Hence, price changes in these stocks affect Nifty 50 index the maximum.

The constituents of Nifty 50 index with maximum weightage are as shown below.

Company Name	Weightage (in %)
Reliance Industries Ltd.	11.89
Infosys Ltd.	9.13
HDFC Bank Ltd.	8.43
ICICI Bank Ltd.	6.64
HDFC	5.66
Tata Consultancy Services Ltd.	5.07
Kotak Mahindra Bank Ltd.	3.37
ITC Ltd.	2.87
Larsen & Toubro Ltd.	2.79
Axis Bank Ltd.	2.63

The Nifty 50 index is considered as a benchmark index as it covers all the major sectors of the Indian economy. Financial Sector constitutes for about 35.17% of the index weight followed by Information technology which constitute for about 18.17%.

The sector wise weightage allocation of Nifty 50 index is as shown below.

Sector	Weight (in %)
Financial Services	35.17
Information Technology	18.17
Oil, Gas & Consumable Fuels	13.62
Fast Moving Consumer Goods	7.18
Automobile and Auto Components	4.80
Healthcare	4.00
Metals & Mining	3.39
Consumer Durables	3.20
Construction	2.79
Telecommunication	2.33
Construction Materials	2.23
Power	1.81
Services	0.73
Chemicals	0.55

The Nifty 50 index is computed using free float market capitalization method and the index is rebalanced on semi annual basis. Some stocks in the index may get replaced by others during the semi annual review. For instance, recently in March 2021, two stocks in the index got replaced - GAIL was replaced by tata consumer products and Indian Oil Corp (IOC) was replaced by Apollo hospitals. The Nifty Next 50 index consists of stocks whose free float market capitalization value comes after that of the Nifty 50 index and hence they can be considered as the potential candidates for inclusion in the Nifty 50 index in future.