You must have seen your dad watching the business channel on the TV, there is repetitive mention of Sensex and Nifty by the anchors and they keep on highlighting the position of the to. Ever wondered what is Sensex and nifty? If yes, you’re on the right page! In this blog, we will be simplifying Sensex and nifty for your better understanding.
There are two main stock market exchanges in India, the Bombay stock exchange (BSE) and the national stock exchange(NSE). On a daily basis, millions of stocks are traded on these exchanges, to make trading easy for investors the exchange came up with indices that make tracking the market easy for the investors. These two indices are the benchmarks for the country’s share market trend, development in the industry, and individual investors’ portfolios.
What is the Stock Market Index?
The stock market index is a statistical benchmark that shows the changes taking place in the stock market. The index is created by grouping together the same type of securities that are already listed in the stock market exchanges. The main criteria of stock selection depend on the type of industry, size of the company, or the market capitalization of the company. The value of the index is calculated using the values of the underlying stocks. If any change takes place in the underlying stock prices it will have an impact on the overall value of the index. Due to various reasons if the prices of most of the underlying securities rise, then the index will rise and vice-versa.
In this way, a stock index reflects the overall market position and throws light on the direction of price movements of goods and products in the financial, commodities, or any other markets.
Some known indices in India are as follows:
- Benchmark indices: NSE Nifty and BSE Sensex
- Broad-based indices: Nifty 50 and BSE 100
- BSE Smallcap and BSE Midcap are indices based on market capitalization
- Sectoral indices include the Nifty FMCG Index and CNX IT
Why are stock-market indexes required?
A large number of stocks are listed on the share market, practically it’s not possible for an investor to see the performance of each of the share before investing, to make the process of investing easier and more efficient indices were introduced, they are benchmarks which shows the overall conditions and the position of the market. They provide ease to the investors in identifying and observing the market trend and position. For reference, the investors use the stock market to decide which stock they should purchase.
To sum up we need a stock market index for the following reasons:-
- Makes stock-picking easier
- Hundreds and Thousands of companies are listed on the stock market, with the help of a benchmark picking stocks becomes easier.
- Aids comparison between stocks
- When one has to pick between stocks and compare which one to include in their portfolio, the index helps in making the decision easier for the investor
- Acts as a representative
- Indices act as the representative of the market, as they represent the whole market or a certain sector of the economy. In India, the benchmark indices are NSE Nifty and BSE Sensex.
What is BSE index Or SENSEX?
Sensex is an index on the Bombay stock exchange, also called as BSE index. Its made by a combination of two words, sensitive and index. Sensex comprises 30 companies and for a company to be on Sensex it has to list on BSE. Liquidity, revenue, market capitalization, and diversification of the company are a few factors that determine this listing. BSE index or Sensex is one of India’s oldest indices and being the oldest investors consider it as a measure of market performance and the economy of India. Investors use the BSE index as a benchmark to measure the growth and development of our economy as well as the industrial sector and understand the stock market trend.
What is NSE Index or NIFTY?
NSE index is called NIFTY. The nifty full form is Nifty is also called nifty 50 as this index comprises the top 50 stocks listed on the national stock exchange.
The main sector of the Indian economy is information technology, consumer goods, financial services, automobiles, telecommunications, etc. the stocks that are chosen in the Nifty-50 are from these sectors.
To be on the NIFTY-50 list, companies should meet the following criteria-
- Float Adjustment: The float-adjusted market capitalization of the company must be at least twice that of the current smallest index composition.
- Domicile: The company should be an Indian company listed on the national stock exchange.
- Liquidity: In the last 6months the stock should be traded at an average cost of 0.50%
IMPORTANT DIFFERENCES BETWEEN SENSEX AND NIFTY
Sensex and Nifty are market indexes of BSE AND NSE and have some key differences between them-
- Sensex is the index of BSE and NIFTY is the index of NSE.
- Top 50 companies listed on the NSE come under the nifty 50 whereas top 30 companies in BSE comes under the sensex.
- Sensex represents the oldest stock exchange in India.
Similarities between Sensex and nifty
If we narrow down the similarities between the two, we come to the conclusion that Sensex and nifty are the market indices of the share market in India and have a similar role in their respective exchanges i.e determining the performance of the market. They are the indicators of the market performance and a tool that helps the traders/ investors in investing.