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 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.

Also read: How To Invest Rs 10,000 In India for High Returns?

NIFTY:

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.

When Sensex/Nifty increases, it shows economic growth of the country. For example, during the Indian recession of 2008-09, the Sensex fell 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.

Also read:

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.

If you are new to stocks and want to learn from scratch, here is an amazing 7-day eCourse: HOW TO INVEST IN INDIAN SHARE MARKET. Enroll now and start your share market journey today (It’s FREE) #Happy Investing.

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 195 Articles
Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst. I'm 23-year old and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting

110 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. Are the same company shares traded in both BSE & NSE? If yes then how is it calculated for the same company prices?

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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.

  9. Hi Kritesh, I found it very easy to understand the information on stock market for beginners through your post.Still there is many things to know about the Stock Market.Will u please refer any good book in simple literature to understand the stock market.

  10. Hi sir..it is really good article.
    Can u please tell me about the business opening and closing time.means on which time a share can be purchased and then can be sold.

  11. Hey firstly thanku so much for ur blog u r doing osm work. But u knw as much i read more doubts occurs in my mind..for many small key words and many stuff like why company sell their shares..and many more might silly u may say ques are emerging in my mind..plz plz can u recmnd me any best book by which i can clear my all from silly to resonable doubts ?

    • Hi. I definitely cannot explain all these answers in a single comment. It took me to write a whole blog to explain the basics. Moreover, I have created an online video course just teach the basics to those who are interested to learn as I cannot explain the same thing again and again in person (I like helping others as long as I have time to do my work first). Feel free to check out the course here. I hope it helps.

    • Yes, this might happen. However, the difference won’t be much. Let’s say nifty went up +0.05% and Sensex went down -0.03%. As the index composition of nifty and Sensex are different (nifty has 50 companies and Sensex has 30), hence they might differ a little. Nevertheless, in general, they follow almost the same trend. I hope it helps.

  12. Nifty falls as in stock price of the share of most companies listed on NSE falls and if Sensex falls as in stock price of the share of most companies listed on BSE falls…is it?

  13. 1.)free float market capitalization is aggregate of all stock exchanges or just one?like 100000 shares offered in IPO…so will they be listed 50:50 on both or separate IPO is required for listing on NSE.?
    2.) apart from share price increase in near future what other vested interest is there for retail investor to invest in securities? Dividends?

  14. Could you please clear doubts below.
    1. why BSE index is always high when compared to NIFTY index, do both have different formulas ? since NIFTY has 50 stocks as sample, where as Sensex has 30 stocks (which are part of NSE stocks only) as sample.
    2. Do am right, BSE is a competitor of NSE ?

    • 1. Sensex was started way before nifty. The base year of Sensex is 1978-79 and the base value is 100. On the other hand, the base year of Nifty is taken as 1995 and the base value is set to 1000. Due to this difference, their values are different.
      2. Yes, both are competitors.

  15. Thank you very much Sir for the valuable information, Its really helps and now i know what is Nifty and Sensex. Bookmarked your site for future reference as I am beginner in Stock Market Industry.
    Thanks

    • Nifty consists of the large 50 stocks listed on NSE and Sensex consists of large 30 companies listed on BSE. However, as the majority of companies are listed on both the stock exchanges, that’s why many companies are the same (in the list of companies in nifty and sensex). Further, the price stocks may vary a little on the stock exchanges depending on the supply and demand.

Leave a Reply

Your email address will not be published.


*