Weighting

Weighting, in the context of stock market indices and investment portfolios, refers to the proportion of the total value allocated to each individual constituent — determining how much influence each component has on the overall performance of the index or portfolio. The most common index weighting methodology is free-float market capitalisation weighting — used by Nifty 50 and Sensex — where each stock's weight is proportional to its publicly tradeable market cap. Other methodologies include equal weighting (each stock has the same weight regardless of size), price weighting (used by the Dow Jones Industrial Average, where higher-priced stocks have more influence), and factor weighting (used in smart beta indices like Nifty 200 Momentum 30 or Nifty 50 Value 20, where weights are determined by factor scores). For index fund investors, understanding how an index is weighted is crucial — a market-cap-weighted index concentrates exposure in the largest companies, potentially creating significant single-stock risk when a few names dominate the index.