The free float market cap of NIFTY in 1995 was Rs.2.06 trillion.
The free float market cap of NIFTY in 2022 is about Rs.75 trillion.
According to the NIFTY formula, the index value of NIFTY = (free float market cap in 2022/free float market cap in 1995)*1000=(75/2.02)*1000=36407.
But the real value of NIfty is 17300.
Where are my calculations wrong here?
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The constituents of nifty keeps changing. When a company of bigger market free float replaces the one with smaller free float, value of free float will increase on the day this switch happens. But the value of nifty remains same.
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When a new company replaces an old company, it replaces one of the bottom 10 companies according to the free float market cap, and the bottom 10 company has less than a 1% contribution to NIFTY. So to a maximum, it can affect 5-10 points. NIFTY is seen to open 100 points gap up or gap down, so to adjust 5-10 points is no big deal.
This is my understanding I can be wrong here, if you think my logic is wrong please share some data sources from where you made your claim.