NIFTY - Market Cap & Free Float

Indian Markets - NSE

Hi Folks,

Today I would like to explain a small concept related to NIFTY50 Weightages. We know that the NIFTY 50 companies are Top 50 companies by Market Capitalization.

However, the weightages assigned to each of these are different. I mean HDFC Bank tops the list even though it has less market cap than Reliance. To understand this further, we need to understand what Market Capitalization is.

Market Cap = No of outstanding shares X Market Price

Reliance has a market cap of ₹ 16,98,042 Cr & HDFC Bank has ₹ 12,75,357 Cr.

Also, we need to understand the term Free Float. Usually, the shares held by promoters are not traded frequently in market. Markets are moving based on trades so to know the direction of the market we need to know which are the companies which are traded more. Free float shares that are actively traded in market (Total Outstanding shares - Promoters shares). Hence NSE apply weightages based on free float available in the market. In above example, HDFC Bank’s promoter’s share is 0% and Reliance’s is 50% which means a greater number of shares of HDFC Bank are traded in the market hence it tops the list.

This concept helps us to understand the direction of the market in general.