Any Indian investor who invests in the Indian stock market, the first thing they track in the morning is the price movement of the Nifty and the Sensex. The Nifty and the Sensex are stock market indexes for the two of the most prominent stock markets in India, the National Stock Exchange and the Bombay Stock exchange.
A market index is known as the weighted average of multiple stocks listed on the stock market and is computed by the price of a certain selection of stocks. Market indexes offer a representation of the entire stock market and help in tracking the changes within the market over time.
Stock Market in India
Majority of the stock trading in India takes place on two of its most prominent stock markets, i.e. the Bombay Stock Exchange or the BSE and the National Stock Exchange or the NSE. The Bombay Stock exchange was incorporated in 1875 whereas the National Stock Exchange was incorporated in 1992.
Both these stock markets have identical trading mechanism, settlement process, trading hours etc. While the Bombay Stock Exchange has over 5500 companies listed on its platform, the National Stock Exchange has around 1200 companies listed on it. Among all the business entities listed on both the stock exchanges, about 500 firms represent over 90% of the total market capitalisation of both the stock exchanges, while balance firms listed on these stock exchanges are high illiquid.
Almost every well-known and important public limited company is listed on both the Bombay Stock Exchange and the National Stock Exchange, and these exchanges are some of the biggest stock exchanges in the world.
The Bombay Stock Exchange and the Sensex
The Bombay Stock Exchange is the oldest stock exchange in Asia and is the 11th largest stock exchange in the world with a market capitalisation of $ 1.43 trillion as of March 2016. Located on the famous Dalal Street in Mumbai, the BSE is also known to be the fastest stock exchange in the world, having a median trade speed of six microseconds.
The market index of the Bombay Stock Exchange is known as the Sensex, also referred to as the BSE 30. It comprises of 30-most financially sound and well-established companies listed on the Bombay Stock Exchange. These companies are selected by their free float market capitalisation, and these 30 companies are spread across different sectors, servicing as a sample of some of the most liquid and well-represented companies listed on the stock exchange
The base value of the BSE was 100 in 1978-79, which was the based year for the Bombay Stock Exchange. The Sensex acts as an indicator for the market movement on the Bombay Stock Exchange, which indicates if the Sensex falls, most of the prices of stocks listed on the Bombay Stock Exchange fall and if the Sensex rises, most of the prices of stocks listed on the Bombay Stock Exchange also rises.
The 30 companies which are listed on the Bombay Stock Exchange are Adani Ports and Special Economic Zone, ICICI Bank Limited, Power Grid Corp. of India Ltd., Asian Paints Ltd., IndusInd Bank Ltd., Reliance Industries Ltd., Bajaj Auto Ltd., ITC Ltd., Sun Pharmaceutical Industries Ltd., Bharti Airtel Ltd., Kotak Mahindra Bank Ltd., Tata Consultancy Services Ltd., Coal India Ltd., Larsen and Toubro Ltd., Tata Motors Ltd., Dr. Reddys’ Laboratories Ltd., Mahindra & Mahindra Ltd., Tata Motors Ltd DVR, HDFC Bank Ltd., Maruti Suzuki India Ltd., Tata Steel Ltd., Hero MotorCorp Ltd., NTPC Ltd., Wipro Ltd., Hindustan Unilever Ltd., Oil and Natural Gas Corp. Ltd., Yes Bank Ltd and Housing Development Finance Corp.
The National Stock Exchange and the NIFTY
The National Stock Exchange was incorporated in 1992, is situated in Mumbai. It is one of the leading stock exchanges in the world and was incorporated to end the monopoly enjoyed by the Bombay Stock Exchange. The National Stock Exchange is the 12th largest stock exchange in the world with a total market capitalisation of $ 1.41 trillion as on March 2016.
The market index of the National Stock Exchange is known as the NIFTY, also referred to as the NIFTY 50. It comprises 50 of the most financially sound and well-established public limited companies listed on the National Stock Exchange.
The base value of NIFTY was set at 1000 with the base year of 1995. These 50 companies are chosen by the free float market capitalisation of these companies, and these 50 companies represent 24 different industrial sectors. The Nifty acts as an indicator for the market movement on the National Stock Exchange, which indicates if the Nifty falls, most of the prices of stocks listed on the National Stock Exchange fall and if the Nifty rises, most of the prices of stocks listed on the National Stock Exchange also rises.
The 50 companies which are listed on the National Stock Exchange are Adani Port and Special Economic Zone Ltd., HDFC Bank Ltd., NTPC Ltd., Ambuja Cements Ltd., Hero MotorCorp Ltd., Oil and Natural Gas Corp. 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 Limited, State Bank of India, Bajaj Auto Ltd., Housing Development Finance Corporation Ltd., Sun Pharmaceuticals Ltd., Bajaj Finance Ltd., ITC Ltd., Tata Consultancy Services Ltd., Bharat Petroleum Corporation Ltd., ICICI Bank Ltd., Tata Motors Ltd., Bharti Airtel Ltd., Indian Oil Corporation Ltd., Tata Steel Ltd., Bosch Ltd., IndusInd Ltd., Tech Mahindra Ltd., Cipla Ltd., Infosys Ltd., UPL Ltd., Coal India Ltd., Kotak Mahindra Bank Ltd., Yes Bank Ltd., UltraTech Cement Ltd., Dr Reddy’s Laboratories Ltd., Larsen and Tourbo Ltd., Vedanta Ltd., Eicher Motors Ltd., Lupin Ltd., Wipro Ltd., GAIL (India) Ltd., Mahindra and Mahindra, HCL Technologies Ltd., Maruti Suzuki India Ltd., and Zee Entertainment Enterprises Ltd.
Conclusion
Both the Sensex and the Nifty are market indexes of their respective stock exchanges and act as the barometer of the market performance and behaviour of individual stock exchanges. The Nifty and the Sensex act as a benchmark for portfolio performance and provides a general idea regarding the movement of stock prices in the respective stock exchanges.