Nifty 50 Companies

1. Liquidity: Liquidity refers to how quickly and easily a stock can be bought or sold without affecting its price. Simply put if you are able to get a large quantity of a stock at the currently quoted price then the stock is liquid.

   NSE measures liquidity in terms of Market impact cost, the costs faced when actually trading an index stock. For a stock to be included in the NIFTY 50, it should have traded at a market impact cost less than or equal to 0.50% during the last six months and for a trade worth minimum Rs. 10crores.

2. Float adjusted market capitalization:Free-float market capitalization is a measure of the market cap of a particular company that is available for trading.

   It is calculated by multiplying the share price by number of shares readily available for trade. So it excludes locked-in shares including shares held by promoters. Simply put it is. For inclusion in the Nifty, the float adjusted market capitalization of the particular company should be at least 1.5 times the average free-float market capitalization of the present smallest index component.

3. Trading frequency: The Company should have traded every day in the last six months.
4. Listing history: The Company should have a listing history of at least 6 months. A company that has just been listed through an IPO should fulfil all the Nifty inclusion criteria’s for a 3 month period.
5. Company should be allowed to trade in futures and Options segment.

1. Inflation + returns - Index funds have consistently generated inflation beating returns over the long term. Coupled with low costs it becomes excellent value for investors.
2. Diversification – It deploys the investment in multiple companies and sectors thereby reducing risk compared to investing in a single or small set of companies. Over time Nifty 50 replaces the underperforming companies at a market level with performing one.
3. Wide market presence – Nifty 50 Index funds are quite popular in India and have a substantial market presence.
4. Low cost - These funds have lower operating expenses as fund managers simply need to replicate the index.

Not all Nifty 50 stocks fit this bill and just selective investment is warranted. For details read, ‘ Building a Portfolio with Core and Booster Stocks’

How to invest in Nifty 50 stocks? The investment approach most suited for Retail investors, is investing in Quality-at-Reasonable-Price. This enables them to stay invested and let compounding do its magic. The best Nifty 50 stocks are usually expensive and very expensive. Investing at very high prices leads to the risk of mediocre returns and steep correction in portfolio worth and eventually exit. But they are available at reasonable prices in a bear market and times of specific temporary setbacks. On such occasions knowing the fair value of the Nifty 50 stocks enables you to invest in them confidently.

Read our blog to know more.

However, keep in mind that a high ROE stock may also be overvalued; making it a very risky investment and a low PE stock may have a reason to remain so. You should always use a combination of ratios, to shortlist the best stocks to invest in. This initial shortlist should then be used to dig deeper into company fundamentals before actually making an investment.

Use the Moneyworks4me screener to find the best Nifty 50 stocks to invest in.