Indices
Indices track a basket of stocks and summarise market performance. The exam tests how Nifty 50 is constructed, what free float means, and how index levels are calculated and used.
Core rules
- NSE's flagship index is Nifty 50; it has a base date of 3 November 1995 and a base value of 1,000.
- Most NSE indices are free-float market-capitalisation weighted: only shares available for public trading count.
- Index level = (current free-float market cap ÷ base free-float market cap) × base index value.
- Index committees review constituents; replacements and share changes require divisor adjustments so the index does not jump artificially.
- Sectoral indices such as Nifty Bank and Nifty IT track specific industries; Nifty Next 50 and Nifty 500 broaden coverage.
- You cannot buy an index itself in the cash market; you gain exposure through index funds, ETFs or index derivatives.
Worked example
Suppose the base free-float market cap is ₹1,00,000 crore and the base index is 1,000. Today's free-float market cap is ₹2,50,000 crore. Index = (2,50,000 ÷ 1,00,000) × 1,000 = 2,500. If a company's promoter holding rises and free float falls, its weight drops even if total market cap is unchanged. That is why free float, not full market cap, drives the calculation.
Traps that cost marks
- Using total market capitalisation instead of free-float market cap.
- Thinking Nifty 50 contains every large-cap stock; it contains 50 selected companies.
- Ignoring the base date and base value when calculating.
- Assuming an index level is a price you can trade directly.