What Is the Nifty Fifty?
The Nifty Fifty was a group of 50 large-cap stocks on the New York Stock Exchange that were most favored by institutional investors in the 1960s and 1970s. Investment in these top 50 stocks—similar to blue-chip stocks of today—is said to have propelled the American economy to its bull market of the 1970s. Companies in this group were usually characterized by consistent earnings growth and high P/E ratios.
Key Takeaways
- The Nifty Fifty was a group of 50 large-cap stocks on the New York Stock Exchange in the 1960s and 1970s, characterized by their consistent earnings growth and high P/E ratios.
- Examples of Nifty Fifty stocks included household names such as General Electric, Coca-Cola, and IBM. However, part of this list also included now-struggling or defunct companies like Xerox and Polaroid.
- Today’s blue-chip stocks in several ways resemble the Nifty Fifty stocks of prior decades.
Understanding the Nifty Fifty
The Nifty 50 stocks got their notoriety in the bull markets of the 1960s and early 1970s. They became known as "one-decision" stocks because investors were told by individuals such as University of Pennsylvania professor Jeremy Siegel that they could buy and hold them forever. That wasn't always the case. Though no one comprehensive list exists of the Nifty 50, examples of some of these stocks included General Electric (GE), Coca-Cola (KO), and IBM (IBM). However, part of this list included companies that have been troubled in the last decade, such as Xerox and Polaroid.
Nifty Fifty Stocks and Price-to-Earnings (P/E) Ratios
Historically nifty-fifty stocks were favored in part due to their high price-to-earnings or P/E ratios. P/E ratios compare a stock’s current market value (price) to its earnings-per-share. Earnings are the company’s net profits, which the CEO and investor relations team announce each quarter on the company’s earnings conference call. The P/E ratio indicates the dollar amount an investor should invest in a company to receive one dollar of that company’s earnings. The P/E is thus sometimes referred to as the price multiple.
Today high P/E ratios, such as with many technology companies (i.e. Tesla’s (TSLA)forward P/E of 1,076) can indicate volatility and a lack of stability. If the company’s price is significantly higher than its actual concrete earnings, this imbalance could suggest investors have over-hyped the company. If the company fails to generate profits, investors who have purchased the stock at a high valuation could see their holdings decline if the market catches on and price drops accordingly.
Nifty Fifty and Today’s Blue Chip Stocks
Today’s blue-chip stocks in several ways resemble the Nifty Fifty stocks of prior decades. Blue-chip stocks are nationally recognized, well-established, and financially sound companies such as Coca-Cola, Disney, PepsiCo, Wal-Mart, General Electric, IBM, and McDonald’s. Dominant in their respective industries, many of these names overlap with those in the Nifty Fifty. Blue-chip stocks represent highly reputable brands and have survived multiple downturns in the economy over the years.
Investors with a low-risk profile (i.e. more conservative or potentially older investors, nearing retirement and looking for stability) often place their assets in blue-chip stocks. These are excellent options for capital preservation. Steady dividend payments provide a stream of income if the investor does not have a salary and also protects the portfolio against inflation.
FAQs
The Nifty Fifty was a group of 50 large-cap stocks on the New York Stock Exchange that were most favored by institutional investors in the 1960s and 1970s. Investment in these top 50 stocks—similar to blue-chip stocks of today—is said to have propelled the American economy to its bull market of the 1970s.
How does the Nifty 50 work? ›
Basic Construct: From the universe of NSE, the top 50 large-cap companies are selected based on their free-float market capitalization. The free-float market cap is calculated by multiplying a company's stock price with the number of shares readily available in the market.
What is the logic behind Nifty 50? ›
NIFTY 50 indices are computed based on a float-adjusted and market capitalisation weighted method. In this method, the level of index demonstrates the aggregate market value of stocks present in the index in a specific base period.
What is the use of Nifty 50? ›
The performance of the NIFTY 50 serves as a barometer for the overall health of the Indian economy. It is a key indicator that investors, economists, and policymakers watch.
What does the Nifty 50 represent? ›
Nifty 50 represents the top 50 stocks listed on the NSE, whereas the Sensex represents the 30 stocks listed on the Bombay Stock Exchange (BSE).
What is NIFTY 50 in simple words? ›
NIFTY stands for National Stock Exchange Fifty. NIFTY full form and meaning is a stock market index that represents the performance of the top 50 companies. These companies are listed on the National Stock Exchange (NSE) of India, a recognized stock exchange in India.
What is the relationship between dollar and NIFTY 50? ›
This means the USDINR goes down while the Nifty 50 increases. The same logic can be applied when you look at it from the other way, i.e. market going down while USDINR increases. This means Nifty 50 and the USDINR should be inversely correlated.
How is NIFTY 50 calculated with example? ›
The Nifty is calculated using the base value of 1,000. The market value is divided by the base market capital multiplied by the base value of 1,000 to determine the index value of Nifty daily. Index Value = Current Market Value / (1000 * Base Market Capital).
What happens when a stock is added to NIFTY 50? ›
Inclusion of a stock in a diversified market benchmark like Nifty 50 is often considered to be a positive. Similarly, exclusion from the index is often interpreted as a signal to get out as returns are perceived to be sub-optimal.
Can I buy NIFTY 50 directly? ›
Yes, you can invest in Nifty 50. There are two ways to do this: directly invest in Nifty 50 by buying the stocks of the 50 companies or indirectly invest in Nifty 50 by investing in mutual funds or exchange-traded funds (ETFs).
How to buy/invest in Nifty 50? There are two options to how you can start investing in Nifty 50. - Firstly, you can buy the stocks directly in the same percentage as their weightage in the Nifty 50. - Secondly, you have the option to invest in Index Mutual Funds that track the Nifty 50 index.
Can we buy or sell NIFTY 50? ›
Nifty trading can be done through spot trading. It involves buying and selling of Nifty stocks in the cash market or spot market and holding them for a long term or short term.
How to read nifty 50 chart? ›
Readings above 80 indicate a security is overbought. Readings between 55 & 80 indicate Bullish condition. Readings between 45 & 55 indicate Neutral condition.Readings between 20 & 45 indicate Bearish condition.Readings below 20 indicate a security is oversold.
How many sectors are there in Nifty 50? ›
The Nifty 50 is a diversified 50 stock index accounting for 13 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.
Why is it called Nifty 50? ›
'Nifty' is a mix of the words “National Stock Exchange” and “fifty.” This is because NIFTY 50 is a flagship benchmark index by the NSE showcasing the 50 top-performing equity stocks that are being traded on the platform. There are a total of 1600 stocks trading on the NSE in a single day.
How to read NIFTY 50 chart? ›
Readings above 80 indicate a security is overbought. Readings between 55 & 80 indicate Bullish condition. Readings between 45 & 55 indicate Neutral condition.Readings between 20 & 45 indicate Bearish condition.Readings below 20 indicate a security is oversold.
How do companies get into NIFTY 50? ›
The NIFTY 50 index is a free float market capitalisation-weighted index. Stocks are added to the index based on the following criteria: Must 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.
