What is Nifty and Sensex? Stock Market Basics for Beginners

What is Nifty and Sensex? Stock market basics for beginners- Have you ever heard of the Dalal street or the D Street?

DALAL STREET

Dalal Street, in Mumbai, India is the address of the Bombay Stock Exchange, the biggest stock exchange in India and several related financial firms and institutions. When Bombay Stock Exchange was moved to this new location at the intersection of Bombay Samāchār Marg and Hammam Street, the street next to the building was renamed as Dalal Street.

In Hindi Dalal means “a broker”. The term “Dalal Street” is used in the same way as “Wall Street” in the U.S., referring to the country’s major stock exchanges and overall financial system.

What is Nifty and Sensex?

In order to understand what is nifty and sensex, you need to understand the Indian stock exchanges first.

Now, let’s discuss the two major stock exchanges in India i.e the ‘Bombay stock exchange’ and the ‘National stock exchange’ along with their indexes.

Bombay Stock Exchange (BSE)

  • Bombay stock exchange is an Indian stock exchange located at Dalal Street, Mumbai, Maharashtra.
  • It was established in 1875 and is Asia’s oldest stock exchange.
  • It is the world’s fastest stock exchange, with a median trade speed of 6 microseconds.
  • The BSE is the world’s 11th largest stock exchange with an overall market capitalization of $1.43 Trillion as of March 2016.
  • More than 5500 companies are publicly listed on the BSE.

What is an Index? Since there are thousands of company listed on a stock exchange, hence it’s really hard to track every single stock to evaluate the market performance at a time. Therefore, a smaller sample is taken which is the representative of the whole market.

This small sample is called Index and it helps in the measurement of the value of a section of the stock market. The index is computed from the prices of selected stocks.

SENSEX:

Sensex also called as BSE 30, is the market index consisting of 30 well-established and financially sound companies listed on Bombay Stock Exchange (BSE).

  • 30 companies are selected on the basis of the free float market capitalization.
  • These are different companies from the different sectors representing a sample of large, liquid and representative companies.
  • The base year of Sensex is 1978-79 and the base value is 100.
  • It is an indicator of market movement.
  • If Sensex go up, it means that most of the stocks in India went up during the given period. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE has gone down.

For example, suppose the Sensex is 26,000 today. If Sensex drops to 25,950 tomorrow, it means that the majority of the 30 companies financial condition is not good i.e. their share price is falling. 

If you want to get in-depth knowledge about Indian Stock Market, I will highly recommend you to read this book: How to avoid loss and earn consistently in the stock market by Prasenjit Paul

National Stock Exchange (NSE):

The National Stock Exchange (NSE) is the leading stock exchange of India, located in Mumbai, Maharashtra, India. It was started to end the monopoly of the Bombay stock exchange in the Indian market.

  • NSE was established in 1992 as the first demutualized electronic exchange in the country.
  • It was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system which offered the easy trading facility to the investors spread across the length and breadth of the country.
  • NSE has a total market capitalization of more than US$1.41 trillion, making it the world’s 12th-largest stock exchange as of March 2016.
  • NSE’s index, the NIFTY 50, is used extensively by investors in India and around the world as a barometer of the Indian capital markets.

Also read: How to follow Stock Market?

NIFTY:

NIFTY 50 is the National Stock Exchange of India’s benchmark stock market index for Indian equity market. Nifty is owned and managed by India Index Services and Products (IISL).

  • The base year is taken as 1995 and the base value is set to 1000.
  • Nifty is calculated on 50 stocks actively traded in the NSE
  • 50 top stocks are selected from 24 sectors.

NOTE: The Sensex and Nifty are both indicators of market movement. If the Sensex or Nifty go up, it means that most of the stocks in India went up during the given period. 

With respect to NIFTY and NSE, we can say that:

  • If Nifty goes up, this means that the stock price of most of the major stocks on NSE has gone up.
  • If Nifty goes down, this tells you that the stock price of most of the major stocks on NSE has gone down.

When Sensex/Nifty increases, it shows economic growth of the country. For example, during the Indian recession of 2008-09 the Sensex fall over 12000 points (-60%).

 

  Before 2008-09 Recession After Recession
Sensex 21000 8900

The fall in the Sensex was analogous to the recession. Meaning, people were selling their shares and an economic crisis in the country.

Want to learn how to select stocks in Indian share market? Get a free guide (ebook) here.

Importance of Market Index:

  • The market indexes are the barometer for the market behavior. It gives a general idea about whether most of the stocks have gone up or gone down.
  • Often, Market Index is used as a benchmark portfolio performance.
  • It is used as a reflector of investor’s sentiments.
  • Market indexes are used for sorting and comparison of the various companies.
  • They are used in passive fund management by Index funds.

That’s all. I hope this post ‘What is nifty and sensex? Stock market basics for beginners’ is helpful to the readers.

Also read: 6 Reasons Why Most People Lose Money in Stock Market

Please comment below if you have any doubts.

Tags: What is nifty and sensex, sensex vs nifty, explain what is nifty and sensex, nifty and sensex explained, meaning of nifty and sensex, what is nifty and sensex and index.

About Kritesh Abhishek 76 Articles
Hi, I am Kritesh. I'm 23, Electrical Engineer, Investor & Blogger. I have a passion for stocks and has spent my last 3 years learning, investing and educating people about stock market investing. And so, I delighted to share my learnings with you on this blog. #HappyInvesting

49 Comments

    • The base price is used as the indicator for the growth. For example, the base value of Sensex in 1978-79 was 100. For the next year (1980), the Sensex was 129, which means a 29% growth in that financial year.

  1. Am 61 year old and Am wish to enter share market Pl guide me like a student. U have nicely explained the NIFYTY n SENSEX.

  2. Sir, why you stated that if the Nifty goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down.As Nifty is the Index of NSE.

  3. can you please tell about BSE 100 and BSE 500 and A, B , P, T , S , XD, XT group stocks. what are they and is the criteria for including this stocks in this group and index

    • Hi Rashmi. Thanks for your comment. Generally, sensex and nifty follow the same trends. If sensex is falling, then there is high chances that the nifty points will also be falling. I hope this is useful. Regards.

  4. Can you please share the strategy of buyback share in which condition company should to follow this strategy to buyback share?

    • The main reasons for buyback of share are: 1) to regain the ownership 2) Undervaluation of the stocks 3) to make the stock more attractive as buyback increases the EPS of the company.

  5. Sir despite being Medical student was able to understand 80% but Sir not able able to get what stocks are exchanged at the stock market?

    • Great to hear that. I’m sure you can grasp 100% of what is explained here.
      Further, all the public companies that are listed on that stock exchange are exchanged/traded in the stock market.

  6. are the 50 companies and 30 companies fixed on nse and bse resp. and i am a bfm student i.e bachelor of financial markets and i want do a masters degree in financial market..i dont have much knowledge and form where is the masters degree possible.

    • No, the companies in Nifty and Sensex are not fixed as they are based on market capitalization (share price * outstanding no of shares). Here, share price is dynamic. Hence, the market cap is also dynamic. Therefore, the 50 and 30 companies are not fixed in the NSE & BSE index.

  7. Hi.You know warren buffet right.My doubt is,he earns around 250 to 260 crores a day in stock market.So what type of shares does he hold.I need to keep the shares for a long time.Can you please provide me the information.

    • Sure, everyone in investing world knows about Warren Buffett. Generally, if you’re an Indian investor, you can hold the Indian companies stocks. Mr Buffett is an ameriacan investor and he holds stocks of companies listed in US.

    • Hi Krishna. Sensex and nifty are just the index. They reflect the performance of the market in general. Sensex and nifty are calculated using the stock prices of top 30 or 50 companies respectively. Nevertheless, the movement in the stock price of a company is not because of the index, but due to its fundamentals and technical. I hope this is helpful.

    • For becoming a licensed stock broker in India, you need to register and become a member of a stock exchange. You must also register with the Securities and Exchange Board of India (SEBI). Read more here.

    • Median trade speed it just the trade clocking to find the response time for an executed trade. There are technical protcols to calucate the trade speed. Besides, BSE is the fastest exchange clocking a median trade speed of 6 micro seconds.

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