Index of Indian Share Markets
There are thousands of companies which are listed in India. It is not easy to track every single stock. So, the solution is a market index which plays a significant role here. Therefore, a market index is computed that is representative of the whole market or a group of market.
Here, Nifty and Sensex are the two important barometers used to gauge the market behavior. These market indices are regarded as a benchmark for portfolio performance.
Nifty and Sensex
Sensex and Nifty are two large-cap stock market indices based on the shares of distinguished companies. These are linked to two distinct national stock exchanges, namely Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), respectively.
We all know about the two stock exchanges in India:
- Bombay Stock Exchange (BSE)
- National Stock Exchange (NSE)
So, Nifty is the market index for companies listed at National Stock Exchange (NSE). Whereas Sensex is the market index for companies listed at Bombay Stock Exchange (BSE).
Hence, Nifty 50 and BSE 30 are merely statistical aggregates on how to measure a shift in the stock market.
Now, we shall study both Nifty and Sensex in detail, one by one.
What is Sensex?
Sensitive Index or Sensex is the share indicator of 30 sensitive and actively listed shares on the Mumbai exchange or generally referred to as the BSE Sensex. It was first published in 1986. The base value of Sensex is 100 and the base year is 1978-79.
Hence, Sensex relies on the market weighed indicator of thirty corporations based on their financial performance. The large, established corporations that represent many industrial sectors are a part of this index.
Calculation of Sensex
Sensex calculation is performed using a Free-Float technique. The Sensex level is a direct sign of the market performance of the 30 large-cap company stocks in the stock market. This does not embrace those stocks controlled by numerous shareholders and promoters and different locked-in shares are not accessible within the stock market.
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Process of Calculation of Sensex
First, the capitalization is taken under consideration. This is done by multiplying all the shares issued by the company with the value of its stock. Then BSE determines the Free Float factor which is a multiple of the capitalization of the corporate. This helps in deciding the free-float market capitalization supported by the small print submitted by the corporate.
Further, the quantitative relation and Proportion method is used based on the index of 100. This helps to work out the Sensex.
What is Nifty
NIFTY is abbreviated form for National Fifty. This is an index on fifty shares listed on the National Stock Exchange of India. It covers 50 different sectors of the Indian economy. So, this is commonly referred to as NIFTY 50 also.
However, presently Nifty has 51 listed in it. It’s conjointly cited as Nifty 50 and CNX Nifty by some. It is closely-held and managed by India Index Services and Products Ltd. (IISL).
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Nifty calculation
Nifty is additionally calculated through the free-float market capitalization weighted technique similar to Sensex. So, Nifty follows a mathematical formula based mostly to understand the market capitalization. It is the multiple of the Equity capital price to derive the market capitalization.
The equity capital is multiplied by a price to determine the Free-float market capitalization. This is further multiplied with Investible Weight Factors (IWF) that is the factor for determining the number of shares offered for trade and commerce freely within the stock market. The current market value is divided by base market capital and then multiplied by the Base Index Value of 1000 to determine the index on a daily basis.
Nifty and Sensex:
Both, Sensex and Nifty are stock exchange index that determine the performance of the stock market. In simple words, they are the clear indicators of the market movement. Hence, you get a clear idea whether most of the major stocks have gone up or down.
Therefore, when Nifty and Sensex goes up, you see an instant cheerful wave in the stock market. You see a quick motion and excitement in stock trading activities. Moreover, increase in the market index directs towards the economic growth of the country.
Since, Nifty is more diversified and has additional stocks listed as compared to BSE Sensex, more trading is done on it. However, each of them targets the large-capitalization stocks and performances over the years have clad to be similar.
If you wish to add any point or ask any query, feel free to do so in the comments.
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