Explained: Reliance Industries is India’s most valuable company but why isn’t it No.1 in Nifty50 weight? – News Air Insight

Reliance Industries Ltd (RIL) may tower over India’s corporate landscape with the largest market capitalization on the bourses, but when it comes to the Nifty 50, the benchmark index that mirrors India’s stock market pulse, it plays second, or rather, third fiddle. As of September 30, RIL ranked third in index weight at 8.18%, behind HDFC Bank at 12.87% and ICICI Bank at 8.52%. The reason lies not in its valuation, but in what investors can actually trade.

The free-float factor

The Nifty 50 doesn’t assign weight based on total market capitalization. Instead, it uses a free-float market capitalization method, which factors in only the shares available for trading by the public. Promoter holdings, government stakes, and other locked-in shares are excluded.

RIL’s promoter group, led by the Ambani family, controls roughly half the company’s shares. That means only the remaining portion, the free float, contributes to its index weight.

By contrast, both HDFC Bank and ICICI Bank have public shareholding levels above 80%, giving them a far greater representation in the index calculation despite smaller total market caps. In the Nifty’s arithmetic, that translates to more weight, even if the total market value is smaller.

This distinction is crucial. As the National Stock Exchange (NSE) explains, the Nifty 50 “is computed using a float-adjusted, market capitalization-weighted methodology, wherein the level of the index reflects the float-adjusted market capitalization of all stocks.” The system, adopted in June 2009, ensures that the index reflects the market’s investable portion rather than sheer corporate scale.

Why the math favours banks

Under this framework, HDFC Bank’s free-float advantage gives it the heftiest share of the Nifty at 12.87%, followed by ICICI Bank’s 8.52%. Reliance, despite being India’s most valuable company, comes in third at 8.18%.Infosys and Bharti Airtel round out the top five with weights of 4.6% and 4.53%, respectively.

Sector-wise, financial services command the largest share of the index at 36.47%, followed by information technology at 9.91% and oil, gas and consumable fuels at 9.79%, the category where Reliance remains the dominant player.

This composition means that banking stocks, with their large free floats and high liquidity, exert a stronger influence on the benchmark’s movements than capital-heavy groups with concentrated ownership structures.

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What it means for investors

For investors, this weighting system has real implications. A stock’s weight determines how much its price moves sway the Nifty 50. So while Reliance’s size and influence over India Inc. are undeniable, its relatively lower free float keeps its impact on the index below that of HDFC Bank. A 1% swing in HDFC Bank, for instance, nudges the Nifty far more than a similar move in Reliance.

In effect, a company with a smaller market cap but a higher free-float ratio can punch above its weight in index terms. The free-float adjustment makes the index more representative of the market’s investable portion and less skewed toward companies with large but tightly held valuations.

On Wednesday, October 8, Reliance shares fell 1.3% to Rs 1,367.3, retreating after a 1.6% gain over the previous two sessions. Even so, RIL remains India’s most valuable company, just not the heaviest stock on the Nifty 50.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)