The construction of the index is based on a comprehensive methodology, taking into consideration all the relevant factors. We include factors with regard to the range of securities, market capitalisation and sector weighting, among others. The methodology allows us to build an index that provides a diversified representation of the applicable market.
It is essential to be familiar with the construction of an index if one desires to become a successful index trader. As previously discussed, it consists of numerous stocks from distinct categories representing the overall economy. A stock must satisfy specific standards in order to be included in the Index.
Once it has been accepted as a part of the Index, it must adhere to those criteria for continued eligibility; if not, that particular stock will be replaced by one that fulfills all requirements.
The selection procedure populates a list of stocks with assigned weightage, which defines the amount of importance each stock in the index is given compared to other securities. To illustrate, 3.85% of Nifty’s flux can be accounted for by ITC Limited if it holds a 3.85% weightage in the Nifty 50 index. A complete look at the weights of all index shares is available here.
A key query is – What is the method to assign weights to the shares that form the Index?
The Indian stock exchange assigns weights using the free-float market capitalization method. The larger the company’s market capitalization, the higher importance it is given.
Market capitalization calculated by the free float method is the result of multiplying the number of outstanding shares in the market and the stock price.
For eg. Company ABC has 100 shares outstanding on the market, with a current stock price of 50 each. Consequently, the free-float market cap of ABC comes to Rs.5,000 (100*50).
| S. No. | Company Name | Weightage |
| 1 | Reliance Industries Limited | 10.50% |
| 2 | HDFC Bank Limited | 9.23% |
| 3 | ICICI Bank Limited | 7.81% |
| 4 | Infosys Limited | 7.13% |
| 5 | Housing Development Finance Corporation Limited | 6.16% |
| 6 | Tata Consultancy Services Limited | 4.45% |
| 7 | ITC Limited | 4.35% |
| 8 | Kotak Mahindra Bank Limited | 3.28% |
| 9 | Larsen & Toubro Limited | 3.34% |
| 10 | Axis Bank | 2.99% |
As of Feb 28, 2023
The Nifty index is most responsive to fluctuations in Reliance Industries Ltd’s price, as it has the highest weight.
Sector-specific indices
The sector-specific indices provide a comprehensive view of the performance of the different sectors within an economy. They measure the movements in stock prices for companies in each sector. Traders, investors, and analysts use this information to understand how each sector is performing, compare returns across sectors, and make informed decisions.
The Sensex and Nifty provide insights into the broad market, whereas sectoral indices show the mood of particular industries. A notable example is the Bank Nifty on NSE, which displays the sentiments in banking. Likewise, CNX IT on NSE indicates how IT stocks perform in the market. BSE and NSE both have dedicated sector-specific indexes that are set up and kept in line with other major indices.
© 2021 BP Equities Pvt. Ltd.
All Rights Reserved
By signing up, you agree to receive transactional messages on WhatsApp. You may also receive a call from a BP Wealth representative to help you with the account opening process
Disclosures and Disclaimer: Investment in securities markets are subject to market risks; please read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Past performance is not indicative of future results. Details provided in the above newsletter are for educational purposes and should not be construed as investment advice by BP Equities Pvt. Ltd. Investors should consult their investment advisor before making any investment decision. BP Equities Pvt Ltd – SEBI Regn No: INZ000176539 (BSE/NSE), IN-DP-CDSL-183-2002 (CDSL), INH000000974 (Research Analyst), CIN: U45200MH1994PTC081564. Please ensure you carefully read the Risk Disclosure Document as prescribed by SEBI | ICF
Attention Investors
Issued in the interest of Investors
Communications: When You use the Website or send emails or other data, information or communication to us, You agree and understand that You are communicating with Us through electronic records and You consent to receive communications via electronic records from Us periodically and as and when required. We may communicate with you by email or by such other mode of communication, electronic or otherwise.
Investor Alert:
BP Equities Pvt Ltd – SEBI Regn No: INZ000176539 (BSE/NSE), INZ000030431 (MCX/NCDEX), IN-DP-CDSL-183-2002 (CDSL),
INH000000974 (Research Analyst) CIN: U45200MH1994PTC081564
BP Comtrade Pvt Ltd – SEBI Regn No: INZ000030431 CIN: U45200MH1994PTC081564
For complaints, send email on investor@bpwealth.com
