How Does NSE Select Stocks for the NIFTY 50 Index?

• What is the NIFTY 50 Index?
• Factors on which the NSE Chooses Stocks for the NIFTY 50 Index
• Weightage of Sectors on the NIFTY 50 Index
• Top 20 Companies on the NIFTY 50 Index in 2023
• NIFTY 50 Historical Performance
• How Can Samco Help You Ace the Index
• Conclusion
• FAQ's

While researching the stock market, you might have often come across the term NIFTY 50 Index. It is one of the most important benchmarks which investors use to analyse market trends and make decisions to buy, sell or hold their assets.  If you are a new investor, having a clear idea of NIFTY 50 can be of great help. You will get to know the current top-performing companies in the Indian economy and create a portfolio comprising companies from various sectors.  However, not all companies get a chance to be listed on the NIFTY 50 index. The NSE has a set of stringent criteria which organisations need to meet in order to be eligible. Find out about them and a lot more by reading this blog. 

What is the NIFTY 50 Index?

The NIFTY 50 Index is a stock market benchmark consisting of the top 50 Indian companies in terms of market capitalisation. It is the flagship index of the National Stock Exchange (NSE) and has been operational since April 1996.  This benchmark represents a portfolio of India’s top companies occupying almost 65% of the NSE’s float-adjusted market capitalisation. Additionally, organisations on NIFTY 50 hail from the major industrial sectors, thus acting as a true reflection of the Indian stock market. 

Factors on which the NSE Chooses Stocks for the NIFTY 50 Index

Here are the factors on which the NSE chooses stocks for the NIFTY 50 Index:

• Company Registration

One of the most vital criteria for a company to be listed on the NIFTY 50 Index is that it needs to be registered on the National Stock Exchange. Apart from this, the entity’s stocks must have a listing history of at least 6 months and have differential voting rights, along with permission to be traded via derivatives contracts.

• Free-Float Market Capitalisation

The top 50 stocks listed on the NSE are chosen on the basis of their free-float market capitalisation. It is determined by multiplying the stock's current market value by the number of shares available for trading. The part of a company's shares held by governments, strategic investors and promoters is not applicable in this regard. 

• Trading Volume

Liquidity is also a big determining factor for a company to get a spot on NIFTY 50. As per NSE requirements, the organisation’s stocks must have a 100% trading volume over the last 6 months in order to qualify in this regard. 

• Rebalancing 

After every 6 months, NSE rebalances NIFTY 50 based on the company’s prevailing market cap. Under such circumstances, businesses with fallen market capitalisation or those that have been delisted, move down. Alternatively, organisations which have appreciated in market value tend to move up the index.  This rebalancing usually happens on 31st July and 31st December every year and is done by a group of professionals who are appointed by NSE Indices Ltd.’s Board of Directors. 

Weightage of Sectors on the NIFTY 50 Index

Now, companies earn a place on the NIFTY 50 Index also depending upon their sectoral weightage. However, the benchmark being a free-float market capitalisation index, this factor tends to change based on its constituent stock performance. As per recent data, the sectoral weightage in NIFTY 50 is as follows:

Industrial Sector	Weightage (in %)
Financial Services	37.92
Information Technology (IT)	13.01
Oil and Gas	12.07
Fast-Moving Consumer Goods (FMCG)	9.97
Automobile	5.82
Healthcare	3.70
Metals and Mining	3.43
Construction	3.28
Consumer Durables	3.22
Telecom	2.56
Power	2.00
Construction Materials	1.90
Services	0.69
Chemicals	0.44

Note – Based on data as of 3rd July 2023. 

Top 20 Companies on the NIFTY 50 Index in 2023

Here are the top 20 companies on the NIFTY 50 stock market index:

Name	Sector	Weightage (in %)
Reliance Industries Ltd. (RELIANCE)	Oil and Gas	10.21
HDFC Bank Ltd. (HDFCBANK)	Financial Services	8.90
ICICI Bank Ltd. (ICICIBANK)	Financial Services	7.74
Housing Development Finance Corporation Ltd. (HDFC)	Financial Services	6.10
Infosys Ltd. (INFY)	IT	5.64
ITC Ltd. (ITC)	FMCG	4.72
Tata Consultancy Services Ltd. (TCS)	IT	4.00
Larsen & Toubro Ltd. (LT)	Construction	3.54
Kotak Mahindra Bank Ltd. (KOTAKBANK)	Financial Services	3.21
Axis Bank Ltd. (AXISBANK)	Financial Services	3.20
Hindustan Unilever Ltd. (HINDUNILVR)	FMCG	2.83
Bharti Airtel Ltd. (BHARTIARTL)	Telecommunication	2.61
State Bank of India (SBIN)	Financial Services	2.60
Bajaj Finance Ltd. (BAJFINANCE)	Financial Services	2.26
Asian Paints Ltd. (ASIANPAINT)	Consumer Durables	1.79
Maruti Suzuki India Ltd. (MARUTI)	Automobile and Auto Components	1.54
Mahindra & Mahindra Ltd. (M&M)	Automobile and Auto Components	1.54
Titan Company Ltd. (TITAN)	Consumer Durables	1.51
HCL Technologies Ltd. (HCLTECH)	IT	1.49
Sun Pharmaceutical Industries Ltd. (SUNPHARMA)	Healthcare	1.34

Note - Data in this table is as per information on 4th July 2023. 

NIFTY 50 Historical Performance

Now, before investing in any asset or index, checking its historical performance will help you assess its long-term return potential. According to a Wealth Conversations Report in 2023, the NIFTY 50 Index delivered 17.5% annualised returns in the last 20 years.  Additionally, during the aforementioned period, the returns from debt instruments and gold were 7.2% and 12.3% respectively. This shows NIFTY 50's potential to facilitate long-term capital appreciation in comparison to other popular investment avenues.   

How Can Samco Help You Ace the Index

As important as it is for you to know the asset or index in which you are investing, it is equally essential to choose a reliable brokerage platform. With the New-Gen Samco App, you can invest in the NIFTY 50 Index for a time period of your choice via monthly instalments.  The platform’s stock SIP feature allows you to allocate an amount to the index each month, depending on your investment objective. What’s more, you can start with a low amount (usually ₹100) and scale up over time.  Samco also enables you to create your own index and track their returns over time. Thus, when it comes to acing the index, Samco has no match!

Conclusion

Given the fact that the NIFTY 50 Index comprises some of the most stable companies in the Indian economy, it can act as an excellent long-term investment avenue. What's more, sectoral diversification will ensure ample risk mitigation, improving the chances of long-term capital generation for investors.  However, no investment in the stock market is completely risk-free. Thus, it is advisable that you invest in this benchmark after assessing your risk tolerance level and as per your investment objective.

FAQ's

• How can I invest in the NIFTY 50 Index?

Ans. There are several ways you can invest in the NIFTY 50 Index. Firstly, you can buy stocks of the 50 companies in equal weightage as present on the benchmark. There is also the option of investing via NIFTY 50 Index funds and ETFs. Alternatively, you can consider purchasing derivatives contracts which have NIFTY 50 securities as their underlying assets. 

• Is investing in the NIFTY 50 Index risky?

Ans. Just like any stock market investment, allocating capital to the NIFTY 50 Index also has its set of risks. However, it will be less in comparison to other avenues as this benchmark consists of the biggest large-cap companies in India across various sectors. Thus, you get the benefit of investing in companies with strong financials along with sectoral diversification.   

• What are the factors affecting NIFTY 50 returns?

Ans. Some of the factors affecting NIFTY 50 returns are shifting market trends, major changes in government policies and the overall performance of different industrial sectors. Apart from these, international geo-political events and global pandemics can also impact this benchmark’s returns. 

• Can I invest in NIFTY 50 using derivatives?

Ans. Yes, you can invest in NIFTY 50 using derivatives. In fact, on NSE, a majority of the available futures and options contracts are based on this particular benchmark. The settlement of all contracts upon expiry will automatically be in cash. 

• What is the difference between NIFTY 50 and SENSEX?

Ans. NIFTY 50 is an index comprising the top 50 large-cap companies on the National Stock Exchange. In contrast, SENSEX is a benchmark consisting of the top 30 large-cap stocks present on the Bombay Stock Exchange.