Nifty 50 Index Explained – How to trade and invest in the Indian stock market

Home > Trading > Nifty 50 Index Explained – How to trade and invest in the Indian stock market

What is the Nifty 50 Index

Though the phrase was originally coined to describe a basket of US blue chips in the 1960s and 70s these days the term refers to the NSE Nifty 50 Index. An Indian equity index diversified over 13 separate sectors managed by the National Stock Exchange of India which captures around 66% of the market cap of Indian equities listed on the NSE. The index was launched in April 1996 with a base or launch value of 1000 index points. Since when the index has been as high as 12300 and as low as 890 points.

How can I buy and sell the Nifty 50?

The size of India and the popularity of the Nifty 50 index means that it’s quite easy to trade in it from the UK. Margin trading and Spread betting offer both spread bets and CFDs on the index for example.

There are ETFs that track the index such as the First Trust India NIFTY 50 Equal Weight ETF (Ticker Nifty) and although that doesn’t explicitly track the Nifty 50 the iShares India 50 ETF (Ticker INDY) tracks the 50 largest companies in India and so it has a very similar though not exact exposure to that of NFTY.

You can also trade or invest in the individual companies within the Nifty 50 index as leading names in the index are often listed overseas as well as in India.  For example, the largest company by market cap in India, Reliance Industries trades in London under the ticker RIGD whilst HDFC bank another index heavyweight is traded on the NYSE under ticker HDB.

Where can you trade the Nifty 50 Index?

You can compare different types of brokers that offer Nifty 50 trading and investing in our comparison tables:

What’s the difference between trading and investing in the Nifty 50 Index?

The answer to that is timescales or investment horizons. Trading is a short term activity with horizons as low as minutes or hours. Whilst investing is typically carried over over much longer timeframes of months or even years. These differences in time horizons also influence product choices, you wouldn’t try to invest for the long term using daily bets in the Nifty 50 index, instead, you’d look to ETFs and individual shares or specialist Indian funds.

What are the constituents of the NIfty 50 Index

The index is made of 50 of the largest and most prominent companies listed on the NSE

In terms of sector exposure, financial services, oil and gas and IT are the heavyweights.

Sector Representation Sector Weight (%)
OIL & GAS 15.74
IT 15.27
POWER 1.91

Source NSE India 31/8/2020

As regards individual stocks conglomerate Reliance Industries is the biggest constituent at some +13.63% of the index whilst tech services giant Infosys accounted for just over +7.0% at the end of August 2020.

Top constituents by weightage % of the index
Reliance Industries Ltd. 13.63
HDFC Bank Ltd. 9.99
Infosys Ltd. 7.03
Housing Development Finance Corporation 6.55
ICICI Bank Ltd 5.62
Tata Consultancy Services Ltd. 4.9
Kotak Mahindra Bank Ltd. 4.24
Hindustan Unilever Ltd. 3.91
ITC Ltd. 3.45
Bharti Airtel Ltd. 2.55

Source NSE India 31/8/2020

In terms of performance, Reliance Industries have been the best performer over the last year gaining +87%, compared to the wider index which was up by just +3.75% over the same period. whilst Eicher motors were down by 8-7.23%, and Indusind Bank, lower by -54.80 over the last 365 days are the clear underperformers in the index.

What can you trade relative to the NIFTY 50?

The outperformance and sheer size of Reliance Industries make it the flagship stock in the index but it also offers traders the opportunity to trade a spread between the name and the Nifty 50 index. Alternatively, you could look trade the India 50 versus the China 50 index as a play between Asia’s two largest and most populous economies.

The Nifty 50 can exhibit positive mid-range correlations with the HK 50, the S&P 500, and Nasdaq 100 indices. Data suggests that the index has mid to weak negative correlations with  FX pairs and crosses involving the Rupee. There is also a weak but positive correlation between NFTY and gold

Interestingly the correlation between First Trust India NIFTY 50 Equal Wtd ETF (NFTY) and the iShares India 50 ETF(INDY) over 120 days is only +0.60 or 60% suggesting that there is scope to trade a spread between the two India focused ETFs.

Scroll to Top