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.
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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 use a base of 3 November 1995 as 1000. On December 31, 2001, i.e. nearly six years later, NIFTY 50 was at 1059.05 while NIFTY 50 TR was at 1150.28. The difference in the two levels is the return obtained on reinvestment of dividends through the intervening period.
No. The market-cap weighted index is "self weighting". I.e. when weights change because prices change, yesterday's index portfolio continues to be today's index portfolio. Hence a buy and hold strategy is all that is required to replicate index returns under normal circumstances. Note that someone who buys and holds a NIFTY 50 portfolio earns dividends, this should be compared with the NIFTY 50 TR index and not plain NIFTY 50.
When corporate actions take place, the market capitalisation changes and weights have to be adjusted. Rights issues, public issues and mergers all present such problems. Of course, when index set changes take place, the portfolio has to be adjusted and weights get modified. This requires elaborate, and consistently-applied policies. These policies have been the subject of great attention and care at NSE Indices and are fully disclosed to the public.
NIFTY 50 is available from 3 July 1990. The historical data is calculated in an intelligent way, i.e. the index set steadily evolves even through the older years. The historical NIFTY and NIFTY-TR are very useful for researches.
From a mutual fund investors point of view, the fund manager should accurately replicate returns on the index. The liquidity filtering in NIFTY 50 and numerous operational details about index management, help ensure accurate tracking. When investors see that an index fund is unable to replicate the returns on an index, they would have dark fears and would abandon the product. NIFTY 50 is the best index in India in terms of the accuracy of tracking possible.
NSE commenced trading in Index Futures on June 12, 2000. The NIFTY futures contracts are based on the popular market benchmark NIFTY 50 Index. NIFTY 50 is uniquely equipped as an index for the index futures ma