MBA Aspirants are expected to know on what is new in economy and what is that impacting it? Today, you will read on NIFTY in India :
NIFTY, an acronym for the National Stock Exchange’s Fifty, is a stock market index for the Indian equity market. It also serves as a benchmark index for the Indian equity market.
Essentially, NIFTY comprises 50 companies from 24 different sectors of the economy. There are two main stock exchanges in India – the Bombay Stock Exchange and the National Stock Exchange.
The National Stock Exchange publishes its index of stocks, which is called NIFTY and the Bombay Stock Exchange publishes its index of stocks, which is called Sensex.
NIFTY is owned by India Index Services and Products, and is India’s first specialised company whose core product is the index. Some of the companies included in NIFTY are Axis Bank, Asian Paints, HCL Technologies, Hindustan Unilever, ICICI Bank, Maruti Suzuki and State Bank of India.
These companies have been chosen because they contribute significantly to the Gross Domestic Product (GDP) of the country.
NIFTY is the largest single financial product in India, comprising exchange traded funds, OTC derivatives, and exchange traded futures and options.
In fact, NIFTY stocks represent 67 percent of the free float market capitalisation of stocks listed on the National Stock Exchange. NIFTY is calculated using the same methodology as Sensex, adopted by the Bombay Stock Exchange.
However, there are three differences between the calculation of Sensex and NIFTY. For the calculation of NIFTY, the base year is taken as 1995, whereas in the calculation of Sensex, the base year is taken as 1978-1979.
NIFTY is calculated on 50 stocks actively traded on the National Stock Exchange, whereas Sensex is calculated on 30 stocks representing large companies. The last difference between the calculations for Sensex and NIFTY is that the base value set for NIFTY is 1000 whereas the base value set for Sensex is 100.
Basically, the changes in NIFTY indicate the rise or fall of the market value of these companies. Since these companies affect the GDP radically, their market share can either make or break the Indian economy. The NIFTY index is indicative of the health of the economy, contributed by these huge corporations.
As per the calculations for NIFTY, out of the 50 stocks, three stocks are currently in the green, showing an upward trend. These are Lupin, Coal India and Cairn. Major losers include Axis Bank, IndusInd Bank, Reliance Infrastructure, DLF, and Punjab National Bank. Recently, Goldman Sachs cut India’s GDP forecast from 6 percent to 4 percent for the year 2014.
In addition, it has cut the forecast for India’s economic growth from 6.8 percent to 5.4 percent for the year 2015. This shows that the 50 companies in NIFTY may not perform as per the expectations of economists and financial analysts.
The decline in the economic growth is derived from the revenue and growth of these 50 companies and it is a reflection of the economic condition of India.
Rising crude oil prices and the depreciation of the rupee add to the woes in the stock market. The value of the rupee has fallen by more than 20 percent since May 2013, resulting in extreme inflation in the country.
All these affect the performance of the companies listed on the National Stock Exchange. In the past few days, there were only a few minutes of trading in the green; NIFTY has seen a gradual downward trend and if the rupee continues to depreciate further, NIFTY may plunge even lower.