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 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.
1. 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 10th largest stock exchange with an overall market capitalization of $2.29 Trillion as of April 2018.
- 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).
- The 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 BSE went up during the given period.
For example, suppose the Sensex is 41,700 today. If Sensex drops to 41,450 tomorrow, it means that the majority of the 30 companies’ financial condition is not good i.e. their share price is falling.
— List of 30 companies consisting of Sensex as of Dec’2019
|Scrip Code||COMPANY||Last Close Price||Industry|
|500820||Asian Paints Ltd||1802||CONSUMER GOODS|
|532215||Axis Bank Ltd||742.75||FINANCIAL SERVICES|
|532977||Bajaj Auto Ltd||3219.05||AUTOMOBILE|
|500034||Bajaj Finance Ltd||4091.1||FINANCIAL SERVICES|
|532454||Bharti Airtel Ltd||448.5||TELECOM|
|532281||HCL Technologies Ltd||569.05||IT|
|500180||HDFC Bank Ltd||1288.45||FINANCIAL SERVICES|
|500182||Hero MotoCorp Ltd||2361.55||AUTOMOBILE|
|500696||Hindustan Unilever Ltd||1949.95||CONSUMER GOODS|
|500010||Housing Development Finance Corp||2412.25||FINANCIAL SERVICES|
|532174||ICICI Bank Ltd||540||FINANCIAL SERVICES|
|532187||IndusInd Bank Ltd||1489.95||FINANCIAL SERVICES|
|500875||ITC Ltd||244.35||CONSUMER GOODS|
|500247||Kotak Mahindra Bank Ltd||1729.3||FINANCIAL SERVICES|
|500510||Larsen & Toubro Ltd||1312.4||CONSTRUCTION|
|500520||Mahindra & Mahindra Ltd||535.05||AUTOMOBILE|
|532500||Maruti Suzuki India Ltd||7239.35||AUTOMOBILE|
|500312||Oil & Natural Gas Corp Ltd||125.6||ENERGY|
|532898||Power Grid Corp of India Ltd||186.35||ENERGY|
|500325||Reliance Industries Ltd||1605.15||ENERGY|
|500112||State Bank of India||328.15||FINANCIAL SERVICES|
|524715||Sun Pharmaceutical Industries Ltd||433.55||PHARMA|
|532540||Tata Consultancy Services Ltd||2228.65||IT|
|500570||Tata Motors Ltd||179.15||AUTOMOBILE|
|570001||Tata Motors Ltd DVR||74.65||AUTOMOBILE|
|500470||Tata Steel Ltd||446.75||METALS|
|532755||Tech Mahindra Ltd||782.85||IT|
|532648||Yes Bank Ltd||49.9||FINANCIAL SERVICES|
(Source: BSE India)
Quick Note: Please notice that ‘Tata Motors Ltd‘ and ‘Tata Motors Ltd DVR‘ are mentioned separately here. That’s why Sensex has presently 31 stocks listed in it. Nevertheless, as the parent company of both these stocks is the same, that’s why Sensex still consists of 30 companies. Do not get confused here!!
2. 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$ 2.27 trillion, making it the world’s 11th-largest stock exchange as of April 2018.
- 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 or Nifty 50
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 that 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
— List of 50 companies consisting of Nifty as of Dec’2019
|Adani Ports and Special Economic Zone Ltd.||SERVICES||ADANIPORTS|
|Asian Paints Ltd.||CONSUMER GOODS||ASIANPAINT|
|Axis Bank Ltd.||FINANCIAL SERVICES||AXISBANK|
|Bajaj Auto Ltd.||AUTOMOBILE||BAJAJ-AUTO|
|Bajaj Finance Ltd.||FINANCIAL SERVICES||BAJFINANCE|
|Bajaj Finserv Ltd.||FINANCIAL SERVICES||BAJAJFINSV|
|Bharat Petroleum Corporation Ltd.||ENERGY||BPCL|
|Bharti Airtel Ltd.||TELECOM||BHARTIARTL|
|Bharti Infratel Ltd.||TELECOM||INFRATEL|
|Britannia Industries Ltd.||CONSUMER GOODS||BRITANNIA|
|Coal India Ltd.||METALS||COALINDIA|
|Dr. Reddy's Laboratories Ltd.||PHARMA||DRREDDY|
|Eicher Motors Ltd.||AUTOMOBILE||EICHERMOT|
|GAIL (India) Ltd.||ENERGY||GAIL|
|Grasim Industries Ltd.||CEMENT & CEMENT PRODUCTS||GRASIM|
|HCL Technologies Ltd.||IT||HCLTECH|
|HDFC Bank Ltd.||FINANCIAL SERVICES||HDFCBANK|
|Hero MotoCorp Ltd.||AUTOMOBILE||HEROMOTOCO|
|Hindalco Industries Ltd.||METALS||HINDALCO|
|Hindustan Unilever Ltd.||CONSUMER GOODS||HINDUNILVR|
|Housing Development Finance Corporation Ltd.||FINANCIAL SERVICES||HDFC|
|ICICI Bank Ltd.||FINANCIAL SERVICES||ICICIBANK|
|ITC Ltd.||CONSUMER GOODS||ITC|
|Indian Oil Corporation Ltd.||ENERGY||IOC|
|IndusInd Bank Ltd.||FINANCIAL SERVICES||INDUSINDBK|
|JSW Steel Ltd.||METALS||JSWSTEEL|
|Kotak Mahindra Bank Ltd.||FINANCIAL SERVICES||KOTAKBANK|
|Larsen & Toubro Ltd.||CONSTRUCTION||LT|
|Mahindra & Mahindra Ltd.||AUTOMOBILE||M&M|
|Maruti Suzuki India Ltd.||AUTOMOBILE||MARUTI|
|Nestle India Ltd.||CONSUMER GOODS||NESTLEIND|
|Oil & Natural Gas Corporation Ltd.||ENERGY||ONGC|
|Power Grid Corporation of India Ltd.||ENERGY||POWERGRID|
|Reliance Industries Ltd.||ENERGY||RELIANCE|
|State Bank of India||FINANCIAL SERVICES||SBIN|
|Sun Pharmaceutical Industries Ltd.||PHARMA||SUNPHARMA|
|Tata Consultancy Services Ltd.||IT||TCS|
|Tata Motors Ltd.||AUTOMOBILE||TATAMOTORS|
|Tata Steel Ltd.||METALS||TATASTEEL|
|Tech Mahindra Ltd.||IT||TECHM|
|Titan Company Ltd.||CONSUMER GOODS||TITAN|
|UPL Ltd.||FERTILISERS & PESTICIDES||UPL|
|UltraTech Cement Ltd.||CEMENT & CEMENT PRODUCTS||ULTRACEMCO|
|Yes Bank Ltd.||FINANCIAL SERVICES||YESBANK|
|Zee Entertainment Enterprises Ltd.||MEDIA & ENTERTAINMENT||ZEEL|
(Source: NSE India)
— Nifty and Sensex Movements Meaning
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.
The same is true in the case of Sensex. Moreover, when Sensex/Nifty goes high, it shows the economic growth of the country. Else if it keeps declining, it might mean a slow-down or depression.
For example, during the Indian recession of 2008-09, the Sensex fell over 12000 points (-60%). The fall in the Sensex was analogous to the recession. Meaning, people were selling their shares and an economic crisis in the country.
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Importance of Market Index
- The market indexes are the barometer for 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.
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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. Happy Investing!
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Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst 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