The weightage of companies on Nifty index is calculated on basis of free-float market capitalisation.
The weightage of the IT sector in the benchmark Nifty 50 index has touched a five-year high of 15 per cent due to the recent rally in stocks such as Tata Consultancy Services (TCS), Infosys and Wipro. In other words, this means IT stocks will now have a bigger impact on the 50-scrip Nifty benchmark index. Stocks of IT companies had comprised 14.17 per cent of the Nifty basket of 50 shares at the end of June, as against 12.3 per cent at the end of 2019, and 12.8 per cent in December 2018.
The weightage of companies on Nifty index is calculated on the basis of free-float market capitalisation, which essentially means the total number of outstanding shares available for public trading (excluding promoter holdings) multiplied by the prevailing market price.
Free-float market capitalisation is always a percentage of the total market capitalisation.
Weightage is a crucial parameter for investment purposes as many funds allocate money to sectors and stocks on the basis of weightage vis-a-vis the benchmark indices.
IT stocks have outperformed the benchmark indices this year, with a combined market cap of Rs 15.9 lakh crore as on Friday, as against Rs 14.9 lakh crore at the start of this year. The combined market capitalisation of five leading IT companies has risen 6.5 per cent since the beginning of 2020.
The outperformance of IT stocks can be attributed to the industry's ability to withstand challenges arising from the COVID-19 pandemic and resultant lockdowns, better-than-expected earnings by the likes of Infosys and HCL Tech, and the perception that IT stocks are safe bets in the face of stock market volatility, say analysts.
Moreover, IT companies have been able to better control their costs due to the widespread implementation of work-from-home option. A weak rupee has also proven beneficial for the IT sector as a major component of IT revenues come from overseas markets.
One has to bear in mind that the weightage of an index or a stock is dynamic, which means it keeps changing in tandem with fluctuation in share prices.
