Before understanding what is Nifty, let us understand what a stock exchange and an index is and what is their use to us. Stock exchanges enable buying and selling of shares at the ongoing market price. National Stock Exhange (NSE) and Bombay Stock Exchange (BSE) are the two major stock exchanges in India which together deal in more than 6000 different shares.
Since it is difficult to track the price movements of all the stocks, a sample of few stocks is taken based on industry, sector or a group of major stocks that control the market to understand the general movement in a particular industry, sector or the entire stock exchange. These samples are called indices and Nifty50 is one such index.
An index shows us the general movement in the stock prices of the stocks that are included in that index. For example, if an index ABC has companies A,B and C, and the price of ABC goes up by 500, it means that the stock price of companies A,B and C will also have an upward movement and vice versa.
Nifty50, commonly referred to as Nifty is the prime index on the NSE. It is used to measure the performance of the stocks of 50 ace companies from 12 different sectors that contribute to major market movement (60% in terms of free float market capitalization) and eventually measure the market performance. Hence, Nifty50 is the true reflection of how NSE is performing thereby broadly reflecting the sense of Indian economy.
Nifty was launched on April 1, 1996 and is owned and managed by India Index Services and Products Ltd. (IISL). Its market capitalization as of April 2018 is USD 2.27 trillion. Nifty 50 is the world’s most actively traded contract.