so. This means that if NIFTY 50 is at 1000, a buy order goes through at 1001 and a sell order gets 999. NSE's NEAT software has special facilities to enable buying or selling the entire the NIFTY 50 at one shot. The impact cost is not something fixed. It changes, depending upon the liquidity of the market. Indeed, the time-series of the NIFTY 50 impact cost is one of the best measures of changes in market liquidity over the years.
Think of a liquid stock as a good thermometer, one which gives accurate data about the true price of the stock, because it trades actively with a tight spread. The prices observed for an illiquid stock are like readings from a low quality thermometer, which reports noisy data about the phenomenon of interest (the true price of the security). We try to find the fifty best thermometers in the country and average their values to make the NIFTY 50. As time passes, better thermometers become available (in the form of large, liquid stocks that are not in the NIFTY 50). We would like that NIFTY 50 always uses the best thermometers possible. So we remove the weakest thermometer from inside the NIFTY 50 and accept the new stock into it. The world changes, so the index should change. Yet, the change should not be sudden - for that would disrupt the character of the index. NIFTY 50 uses clear, researched and publicly documented rules for index revision. These rules are applied regularly, to obtain changes to the index set. Index reviews are carried out every six months to ensure that each security in the index fulfils all the laid down criteria. IDBI was once not listed; SBI was once illiquid; Infosys was once an obscure software startup. The world changes, and one by one, these stocks have come into the NIFTY 50. Each change in the NIFTY 50 is small, so the continuity of the index is maintained. Yet, at all times, NIFTY 50 represents the 50 large and most liquid stocks in the country, the best thermometers to build an index out of.
No. There are mathematical formulas, which ensure that yesterday's value and today's are comparable, even if a change in composition takes place in-between. Think of an index as a portfolio. The composition of the portfolio changes, but it is still meaningful to keep measuring the overnight returns on the portfolio from day to day. These returns, cumulated up, are the index level.
Of course they will. Hence there are no speculators on the internal committee of NSE Indices, which manages the index revisions. Further, there are objective, publicly defined rules which determine when stocks come in and go out of the index. There isn't much room for personal judgement here.
High quality information
The NIFTY closing prices are calculated by taking the last half an hour weighted average closing prices of the constituents of the index.
NSE has the best surveillance procedures in India, so the extent of market manipulation is minimum there. In NSE, the professional staff of the surveillance department has no positions on the market. This elimination of conflicts of interest generates a more honest focus upon eliminating market manipulation. On a day to day basis millions of shares get traded on the NSE generating huge order flows. Due to the liquidity and order flow from numerous market players manipulation of the closing price becomes very hard. NSE is the most liquid exchange in India. Hence, the prices observed there are the most reliable. NSE has the highest trading intensity (reducing stale prices) and their bid-ask spreads are the tightest (reducing bid-ask bounce). This is assisted by the fact that the NSE tick size is ₹ 0.05 for all stocks, which encourages tight bid-ask spreads.
What is commonly reported as NIFTY 50 on TV and in the newspapers is actually the NIFTY 50 Price Index. It only reflects changes in prices. NSE Indices also calculates something called the NIFTY 50 Total Returns (TR) index. This shows the returns on the index portfolio, inclusive of dividends. This is the appropriate benchmark for mutual funds, which do earn dividends. Both NIFTY 50 and NIFTY 50 TR us