How to Spread Bet the Indian Nifty 50
One of the more interesting indices that you could be spread betting on is the so-called Indian Nifty 50. This is also known as the India 50. It is based on the shares of 50 companies quoted on the Indian stock exchange, the National Stock Exchange of India. It is proudly noted that these 50 companies represent 24 different market sectors of the economy, therefore the index is a good representation of the overall health of the Indian markets.
Can you explain a little about the Nifty Fifty Index and how it works?
The Nifty Fifty index is the most important index reference for the largest publicly quoted companies in India. The Nifty 50 was developed in 1995 by a couple of economists, and is a weighted index so that larger companies with greater capitalization have a bigger effect on the index. The index was set to a notional 1000 in November 1995 when it was launched. The companies on the list account for more than 60% of the equity value of the National Stock Exchange, and for more than three-quarters of the trading value.
The index has grown steadily along with India’s economy, thereby confirming that the Indian Nifty 50 is a good reflection of the development of this up and coming country. There is a separate agency responsible for maintaining the index known as India Index Services and Products Limited (IISL), which is also licensed and monitored by Standard & Poor’s in the US.
The Indian 50 is acknowledged to be a good reflection of India’s financial system, but it’s worth looking at the conditions for membership of the Nifty 50. The rules are clearly laid down, and do not involve distortion of the figures or share values. The company must have an average market capitalization of at least 5000 million rupees in the previous six months (there are about Rs.80 to one pound sterling). Liquidity is measured by the cost of transactions over the last six months to ensure that the company is being freely traded, and at least 12% of the stock must be available on the market and not held by family or other promoters of the company.
The top four shares in the index may not be well known to you, but account for about one third of the value of the index. They are ICICI Bank, Infosys Technologies, Larsen & Toubro, and Reliance Industries. In fact, just the top eight companies in the index account for about half of the value. As mentioned previously, there is no adjustment in weighting to allow for the size of companies, but they are included to the full value of their capitalization.
Many experts predict that India is on the rise, and one of the up-and-coming countries, therefore the Indian Nifty 50 may be of particular interest to you. It certainly may repay the time spent in researching the constituent companies, and in reviewing India’s standing in the international economy. Of course when playing such exotic markets one also has to exercise caution which in the case of the Indian rupee (INR) this will be the current account defcit issues. That said, fundamentals play little part in short term trading, so it is quite in order to use technical analysis to try to determine the market sympathies of the Indian 50, and to spread bet on it accordingly. As always, but more especially when you are not that familiar with the product, you should take care to set your stop losses to avoid any heartache.
Indian Nifty 50 Spreads
The Nifty 50 is the best known index on the Indian National Stock Exchange, and as the name suggests it comprises the shares of 50 companies which are well diversified across 24 sectors of the economy.
The current spread bet quote for the India 50, as spread betting company IG Index calls it, is 4776 – 4782 for a futures bet expiring next month. Say you think that it will go down, and want to place a spread bet to profit from a fall in the index.
You would place your bet by “selling” maybe £12 per point at a price of 4776 and watch the market movements closely. Perhaps it would drop to a price of 4743 – 4749, and you decide to close your bet for a profit.
As you close your bet by effectively “buying” back, it is at the higher price of 4749.
You can calculate your profit like this: –
- total number of points won is 4776-4749, remembering that you placed a “short” bet on the index going down
- number of points won is 27
- the bet was £12 per point
- so your total winnings are 27 times £12, which is £324.
If you had misread the market, and instead of going down the index went up, you might find that you have a losing bet. To succeed in trading you have to take your losses quickly, before they have a chance to grow. Say the index went up to 4784 – 4790, and you decided to close your bet for a loss.
You can calculate your loss in the same way, like this: –
- total number of points lost is 4790-4776
- the number of points lost is 14
- the bet was £12 per point
- your loss is limited to 14 times £12
- total loss is £168.
It might be that you had anticipated the possibility of this quick rise in the index, but your analysis of the index told you it would come back down over several weeks. You should always have a stop loss price where you are going to exit a losing trade, and have this worked out before you make your bet, so that you can do so based on the facts dispassionately.
Say you had decided that your stop loss position was greater than this spread bet quotation, and did not close the bet yet. Perhaps as planned it would swing back again, and put your bet in profit.
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