The Sensex and Nifty are two of the most important stock market indices in India that act as barometers for the overall health and performance of the Indian stock markets. Understanding how these indices work and what drives their movements can help investors make better investment decisions. This blog post will provide a simple overview of what you should know about the Sensex and Nifty.
What is Sensex?
Sensex (S&P BSE SENSEX Index) is a BSE index that is the leading benchmarking index of the Bombay Stock Exchange (BSE). It is an index of 30 stocks from 29 exchange-listed firms that are financially perceptive and secure. These 30 companies are from various sectors like information technology, financial services, consumer goods, healthcare, etc. The Sensex was first compiled in 1986 with the base year set as 1978-79. Sensex is calculated by using the free-float market capitalization method. This means that the index calculation excludes promoter holdings and considers only freely traded shares. A change in the price of constituent stocks leads to a corresponding change in the index level.
Significance of Sensex
The Sensex today is regarded as the pulse of the Indian stock markets. It is the oldest and most tracked index in India. The performance of the Sensex is considered to be representative of the overall state of the Indian economy and investor sentiment. The index is widely reported in domestic and international markets through print, electronic media, and digital platforms. The Sensex is used as an underlying asset for various financial products like index funds, derivatives, and exchange-traded funds (ETFs). It also forms the basis for several other BSE indices.
What is Nifty?
The Nifty 50, short for NIFTY 50 Index, is the benchmark index of the National Stock Exchange (NSE). It comprises the 50 largest and most liquid stocks from 13 important sectors listed on the NSE. These sectors include banking, financial services, IT, pharma, FMCG, etc. Nifty comprises indices such as Nifty 50, Nifty Bank, Nifty IT, Nifty Next 50. The Nifty index has a base value of 1000 and a base date of November 3, 1995. It is under the management of India Index Services and Products (IISL). The Nifty, an index used in Indian financial markets, is essentially a free-float-weighted, market capitalization-weighted index.
Significance of nifty
The Nifty accounts for 13 sectors of the economy and is used extensively by investors in India and globally to make investment decisions. It is scientifically designed and is ideally suited for benchmarking, index funds, and index-based derivatives. The Nifty stocks have about 66% of the free flow capitalisation of the stocks trading on the NSE. Being broad-based and more representative, it is used as a benchmark more often than BSE Sensex. Nifty options and futures are also traded on the derivatives market. The Nifty continues to be a driving force behind portfolio management and investment strategies adopted by market participants in India.
Conclusion
The Sensex and Nifty provide a reliable snapshot of the Indian stock markets in the most condensed form, showing the intra-day movement, tracking them closely and understanding the forces that move them are important for investors and traders as the indices help gauge both short-term market moods and long-term economic growth prospects. While they might seem volatile on a day-to-day basis, the Sensex and Nifty have shown tremendous growth over the past decades. With India emerging as a global economic powerhouse, the stature and relevance of these indices will continue to rise further in the future.