Learn What is Meant by Sensex & Nifty Online in India | My Espresso

what are Sensex and Nifty

When you start investing in the stock market, you come across various terms and jargon that can seem overwhelming. Two of the most basic terms used are the BSE Sensex and Nifty. While a quick online search will tell you that these are stock market indices, in this article, we will attempt to decode them for you to help you gain a comprehensive understanding. Let’s begin with some basics.

Published on 01 March 2023

What is a Stock Market Index?

Trading in the share market takes place on a stock exchange. You can buy and sell shares of companies that are listed with the exchange. Currently, there are around nine stock market exchanges in India, and companies can choose to list their shares with one or multiple exchanges.

In the share market, the price of a share is determined by its demand and supply. Investor sentiment towards the economy, sector and company plays a huge role in determining the price of a stock. Every exchange has hundreds of stocks listed. To assess the overall sentiment of investors, it is important to have a statistical measure that helps us understand the direction in which the average stock prices are moving. In other words, are most of the stocks experiencing a price rise or fall.

This is made possible by a share market index. It is a measure of the average performance of stocks as defined by the index. So, if there is an index that covers stocks of banking companies, then the index will offer an insight into the direction stock prices have taken compared to the previous day.
Also Read: What are Stock Market Indices?

What are Sensex and Nifty?

Two of the most popular exchanges are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The BSE has over 5000 listed companies, while the NSE has around 2000 companies. To assess the overall performance of stocks in these exchanges, two indices were formed:

  • Sensex for BSE
  • Nifty for NSE

What is Sensex?

The S&P BSE Sensex is also known as the Sensitive Index and is owned and managed by the BSE. It is the oldest share market index in India and reflects the performance of the BSE. It comprises the 30 most actively traded stocks listed on the BSE that cover around 12-13 sectors. If the BSE Sensex increases, then it means that the average price of the underlying 30 stocks has increased too and vice versa. Internationally, the BSE Sensex is traded on the EUREX exchange and the stock exchanges of BRICS countries
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BSE Sensex Calculation

First, the market capitalization of all of the 30 companies is calculated. This is converted into free-float market capitalization by multiplying it with a free-float factor. Lastly, the free-float market capitalization is divided by the index divisor (100) to arrive at the value of the Sensex.

The base year of the Sensex is 1978-79, and the base value is 100. This means that in 1979, the Sensex was at 100 points. If in 1980, it increased to 125 points, then the returns offered by the index were 25%. Currently, the Sensex is at 59,000 points. This means that in around 43 years, it has offered a CAGR return of around 16%.

What is Nifty?

The Nifty 50 is also known as the National Fifty Index and is owned by a subsidiary of NSE called IISL (Index and Services and Products Limited). It reflects the performance of the National Stock Exchange or NSE. Nifty comprises the 50 most actively traded stocks on the NSE that cover around 24 sectors. Internationally, Nifty is traded on the Singapore Stock Exchange and the Chicago Mercantile Exchange.

Nifty Calculation

Nifty is calculated by dividing the current market value by the base market capital and multiplying the result by 1000.

The base year of Nifty is 1995, and the base value is 1000. Currently, the Nifty is at 17,600 points. The CAGR returns offered by Nifty in nearly 26 years are around 11.66%.
Also Read: What is Nifty Index Fund & How to invest In It?

Chandresh Khona
Team Espresso

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