WHAT ARE SENSEX AND NIFTY AND HOW THEY WORK?
Sensex and Nifty are stock market index/indices in India. Sensex is an index of Bombay Stock Exchange(BSE), and Nifty is an index of the National Stock Exchange(NSE). These are the major indices in stock market where thousands of stocks are listed. Indices play a crucial role in defining the movement stock in certain direction used to measure the performance of Stock market in India.Every Investor search out the opportunities from different criteria to their best. Also often used as an indicator for Indian economy which serves as a Benchmark to analyse the performance of a portfolio’s returns.
It is useful for various aspects such as:
> Providing compared historical data of returns of stock market.
> It Indicate the overall performance of companies in different sectors.
> Reflect highly up to date information.
Sensex
Sensex is stock market index incorporated in1986. It is a combination of Sensitive and Index in India that tracks the performance of top 30 companies listed on the Bombay Stock Exchange (BSE) based on the performance and financial soundness. It is considered to the“barometer” of the Indian Stock market to measure the Indian economy. Sensex is calculated by using the free-float market capitalisation method, market capitalisation of all the companies listed on BSE is Rs. 1,24,69,879 crore. BSE has other indices under various categories of Equity and fixed Income .The performance of the 30 selected stocks is directly reflected by the level of the index. Over 6000 companies are listed in BSE. Sensex covers 13 sectors.
Market Capitalisation – Company should be listed in Top 100 companies in full market capitalisation
Norms for selecting the 30 companies
> Stock should be listed on the BSE.
> Large-cap stocks with high market capitalization.
> High liquidity.
> Average daily turnover.
> Wide industry representation.
How to calculate Sensex
> Market capitalization of listed 30 companies.
> Free float capitalisation of all the companies is established and add together to free float capitalisation value.
> Apply the Sensex formula:
Sensex formula = (Free float market capitalisation of 30 companies/Base market capitalisation) *Base value of the Index.
> Final Sensex value
Nifty
Nifty is a stock market index, incorporated in 1996 which is the combination of National and fifty (Nifty) that tracks the performance of the top 50 companies listed in NSE. It is most widely used benchmarks for the Indian equity market and used to measure the Indian economy.
The index is calculated using a free-float market capitalization-weighted methodology. The total market capitalisation of all the companies listed on NSE is Rs 12,282,127 crore. It takes into the account only the shares that are available for trading in the market. Nifty tracks the 50 largest stocks from the 2100 stocks listed in NSE. These companies are from different industrial sector and they collectively represent the stock Market. The company that are included in Nifty are reviewed periodically to ensure that the index remains representative of the Indian economy. 2100 companies are traded in NSE across 24 different sectors. Nifty is maintained by Indian Index stock services and product ltd (IISL) which is joint venture of National Stock Exchange services.
Norms for selecting the 50 stocks in Nifty
> Stocks must be listed on the NSE and should be included in NSE’s futures and options trading list.
> Company’s registered office should be in India.
> Large-cap stocks with market capitalization
> High liquidity
> High volume
How to calculate Nifty
Market capitalization = outstanding share * price
The major difference in Sensex and Nifty is number of constituents they have;
Sensex Comprises the top 30 companies in BSE whereas Nifty constitute the 50 companies that actively traded in NSE
Both Nifty and Sensex have shown long term growth trends of stock market Investors and analyst daily monitors the fluctuation in indices use Sensex and Nifty to gauge the performance of the Indian Stock market and make Investment decisions accordingly.
Who can invest in BSE and NSE
If you are an investor and want to invest in new company’s shares then you can give preference to BSE, but if you want to trade on daily basis in all the segments of equity like cash, future & options then you can do it on NSE.
Conclusion
The basic conclusion of Sensex and Nifty is these are used to measure the performance of Indian stock Market and the Indicators to the Indian economy.
When the value of index is rises. It is assumed that the overall market is doing well. Indicating positive economic trends in the country when it falls it is considered not to be doing well indicating negative economic trends in the country.
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