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.
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 also called 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 the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE has gone down. If Sensex goes up, it means that most of the major stocks in NSE went up during the given period.
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.
Here is the list of 30 companies consisting of Sensex as of Jan’2018:
|Adani Ports and Special Economic Zone||ICICI Bank Ltd||Power Grid Corp of India Ltd|
|Asian Paints Ltd||IndusInd Bank Ltd||Reliance Industries Ltd|
|Axis Bank Ltd||Infosys Ltd||State Bank of India|
|Bajaj Auto Ltd||ITC Ltd||Sun Pharmaceutical Industries Ltd|
|Bharti Airtel Ltd||Kotak Mahindra Bank Ltd||Tata Consultancy Services Ltd|
|Coal India Ltd||Larsen & Toubro Ltd||Tata Motors Ltd|
|Dr Reddy’s Laboratories Ltd||Mahindra & Mahindra Ltd||Tata Motors Ltd DVR|
|HDFC Bank Ltd||Maruti Suzuki India Ltd||Tata Steel Ltd|
|Hero MotoCorp Ltd||NTPC Ltd||Wipro Ltd|
|Hindustan Unilever Ltd||Oil & Natural Gas Corp Ltd||Yes Bank Ltd|
|Housing Development Finance Corp|
Source: BSE India
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.
Nifty, also called NIFTY 50, is the market index consisting of 50 well-established and financially sound companies listed on National Stock Exchange of India (NSE).
- The base year is taken as 1995 and the base value is set to 1000.
- Nifty is calculated using 50 large stocks which are actively traded on the NSE.
- The 50 companies are selected on the basis of the free float market capitalization.
- Here, the 50 top stocks are selected from different 24 sectors.
- Nifty is owned and managed by India Index Services and Products (IISL)
Since inception in 1995, Nifty has given a return of 11.13% CAGR (till April 30, 2018).
Also read: Nifty 50 fact sheet
Here is the list of 50 companies consisting of Nifty as of Jan’2018:
|Adani Ports and Special Economic Zone Ltd.||HDFC Bank Ltd.||NTPC Ltd.|
|Ambuja Cements Ltd.||Hero MotoCorp Ltd.||Oil & Natural Gas Corporation Ltd.|
|Asian Paints Ltd.||Hindalco Industries Ltd.||Power Grid Corporation of India Ltd.|
|Aurobindo Pharma Ltd.||Hindustan Petroleum Corporation Ltd.||Reliance Industries Ltd.|
|Axis Bank Ltd.||Hindustan Unilever Ltd.||State Bank of India|
|Bajaj Auto Ltd.||Housing Development Finance Corporation Ltd.||Sun Pharmaceutical Industries Ltd.|
|Bajaj Finance Ltd.||I T C Ltd.||Tata Consultancy Services Ltd.|
|Bharat Petroleum Corporation Ltd.||ICICI Bank Ltd.||Tata Motors Ltd.|
|Bharti Airtel Ltd.||Indiabulls Housing Finance Ltd.||Tata Motors Ltd DVR|
|Bharti Infratel Ltd.||Indian Oil Corporation Ltd.||Tata Steel Ltd.|
|Bosch Ltd.||IndusInd Bank Ltd.||Tech Mahindra Ltd.|
|Cipla Ltd.||Infosys Ltd.||UPL Ltd.|
|Coal India Ltd.||Kotak Mahindra Bank Ltd.||UltraTech Cement Ltd.|
|Dr. Reddy’s Laboratories Ltd.||Larsen & Toubro Ltd.||Vedanta Ltd.|
|Eicher Motors Ltd.||Lupin Ltd.||Wipro Ltd.|
|GAIL (India) Ltd.||Mahindra & Mahindra Ltd.||Yes Bank Ltd.|
|HCL Technologies Ltd.||Maruti Suzuki India Ltd.||Zee Entertainment Enterprises Ltd.|
Source: NSE India
Quick Note: Please notice that ‘Tata Motors Ltd‘ and ‘Tata Motors Ltd DVR‘ are mentioned separately here. That’s why Nifty has presently 51 stocks listed in it. Nevertheless, as the parent company of both these stocks is same, that’s why Nifty still consists of 50 companies. Do not get confused here!!
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.
- On the other hand, if nifty goes down, this tells you that the stock price of most of the major stocks on NSE has gone down.
|Before 2008-09 Recession||After Recession|
The fall in the Sensex was analogous to 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 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.
- Indices act as an underlying for Index Funds, Index Futures, and Options.
- They are used in passive fund management by Index funds.
- The index can give a comparison of returns on investments in stock markets as opposed to asset classes such as gold or debt.
That’s all. I hope this post ‘What is nifty and sensex? Stock market basics for beginners’ is helpful to the readers.
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