The NIFTY
50 index is a well-diversified 50 companies index reflecting overall
market conditions. NIFTY 50 Index is computed using free float market
capitalization method.
These indexes
are useful because they provide investors and companies with a reliable
benchmark. They have also been used as an investment strategy. In these cases,
Investment Managers just set up their fund portfolios to simply track the
index. They use the same portfolio as the index in an attempt to gain similar
market returns.
Eligibility
Criteria for Selection of Constituent Stocks:
i. 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 possible inclusion into the NIFTY50, have traded at an average impact cost
of 0.50% or less during the last six months for 90% of the observations, for
the basket size of Rs. 100 Million.
ii. The
company should have a listing history of 6 months.
iii. Companies
that are allowed to trade in F&O segment are only eligible to be
constituent of the index.
iv. A company
which comes out with an IPO will be eligible for inclusion in the index, if it
fulfills the normal eligibility criteria for the index for a 3 month period
instead of a 6 month period.
Index
Re-Balancing:
Index is
re-balanced on semi-annual basis. The cut-off date is January 31 and July 31 of
each year, i.e. For semi-annual review of indices, average data for six months
ending the cut-off date is considered. Four weeks prior notice is given to
market from the date of change.
Index
Governance:
A professional
team manages all NSE indices. There is a three-tier governance structure
comprising the Board of Directors of NSE Indices Limited, the Index Advisory
Committee (Equity) and the Index Maintenance Sub-Committee.
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