What is Nifty and Sensex? Stock market basics for beginners- Have you ever heard of the Dalal street or the D 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 .
The 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.
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 have 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 read more about Indian stock market, I will recommend to read the book- Bulls, Bears and Other Beasts: A Story of the Indian Stock Market by Santosh Nair.
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 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.
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|
The fall in the Sensex was analogous with the recession. Meaning, people were selling their shares and an economic crisis in the country.
Importance of Market Index:
- The market indexes are the barometer for the market behaviour. It gives a general idea about whether most of the stocks has 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.
Please comment below if you have any doubts.
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