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How Nifty is calculated?
Posted by Yogesh on Tuesday, 15 July, 2008
By Malvika Raghvanshi,
Nifty index movement is based on the movement of 50 scripts. These scripts are calculated on the bases of Free-float Market Capitalization methodology. It is calculate on the basis of 50 index stock at any time free float market value of stock. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization. In Free Float, a company’s entire lot of shares is not taken into account (which means we are not looking at the entire market capitalization). Only the shares readily available for trading are considered.
In every company, a certain amount of shares are not available for trading on the stock exchange. These shares could be held by the government or the promoters of the company. Under the free-float weight age method, they are not taken into account.
The Index was initially calculated based on the “Full Market Capitalization” methodology but was shifted to the free-float methodology and the criteria of inclusion of scripts become Free-float method
In other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the market. So, free float is the actual criteria of evaluating the capital of the stock in the market not market capitalization method.
The addition and deletion of scripts is also taken place according to free float method in Index time to time.
In NIFTY scripts are having its own beta value and according to that value over all the sum of 50 scripts accumulated to go for the final point’s declaration on daily basis.
