If you are someone who has recently started investing in the share market, then you might have come across the term ‘Nifty 50’. We know you might have probably shied away from asking anyone what it actually means (probably due to the fear of being understood as dumb). That’s exactly why we have this article for. Let’s understand thoroughly what the Nifty 50 is and why you, as a newbie investor, must keep a close eye on it.
What Is The Nifty 50?
As the term represents, Nifty 50 consists of India’s top fifty companies that are listed on the National Stock Exchange. These companies come from numerous sectors such as IT, banking, pharmaceuticals, and healthcare. Nifty 50 is understood as the country’s benchmark stock market index that represents the performance of the top 50 stocks or shares released by Indian companies.
In simple terms, the better the performance of the Nifty 50, the market is performing. The moment the Nifty 50 starts to fall, it implies that the Indian stock market is in a bearish mode. For new investors, this index aids in understanding how the Nifty stock market behaves over time.
Here are the top reasons why every new investor must understand and consistently track the Nifty 50:
- Understanding The Health Of The Indian Economy:
As mentioned earlier, the companies listed on the Nifty 50 are a key indicator of India’s economic growth and strength. It includes companies from diversified sectors like healthcare, IT, pharmaceuticals, etc. Once a newbie investor starts tracking the Nifty 50 and the growth of these companies, he or she will gain a clearer perspective on where the country’s economy is heading. For example, if a company from the IT sector is displaying a growth boost, it could imply that India has a bright and confident digital sector.
- Simplified Starting For Beginners:
With an end number of stock options available in the market, new investors can get very confused as to which one they should invest in. Tracking and understanding the Nifty 50 can significantly simplify things for them. Instead of getting overwhelmed with numerous stock recommendations, you can simply choose to focus on only the companies listed on the Nifty 50 and track them. The Nifty 50 is available to track on any demat account app that you use.
- Make Smarter Investment Decisions:
Consistently tracking the Nifty 50 helps you to make smart decisions while you decide to buy stocks. If it is moving upwards, displaying a bullish trend, then it is an indicator of a good time to invest in the share market. Conversely, if the Nifty 50 is on a declining trend, then it can indicate that it is in a bearish trend, which means more chances of risk. One should avoid making any major financial decisions in this phase.
By observing the changes in the Nifty 50, you can easily decide whether you want to use your demat account and buy stocks or start an SIP in mutual funds.
- Simplified Benchmarking Of Investment Portfolio:
Once you have thoroughly diversified your investment portfolio across stocks and mutual funds, then comes the time to track its growth and performance. If your cumulative returns from your investments are lower than the performance of the Nifty 50, then it is an indication that you might need to rethink your investment strategies. On the other hand, if the cumulative returns are higher, then it means that your strategy is very much on the correct track.
Tracking the Nifty 50 is less about following numbers and more about gaining financial awareness and building a foundation for smart investing. It helps you stay informed, reduces your chances of making impulsive decisions, and makes you a more confident investor. So, before diving deep into individual stocks, start by observing the Nifty 50 and make it your first and most reliable guide to the ins and outs of the Indian economy.