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What are Nifty and Sensex? – Indian Stock Market Basics

We all are familiar with these two terms – NSE [National stock exchange] and BSE [Bombay Stock Exchange]. These are the largest and most important stock exchanges in India. Nifty and Sensex both are the indices of these two stock exchanges severally.

Nifty and Sensex work as the primary stock market indices of NSE and BSE. They reflect the economic strength and weakness of the Indian stock market. These indices are constituted by selecting top companies of India. So, the stock price movement in those companies along will represent the Indian market with a single value.

Therefore, these are statistical aggregate to measure how the stock market behaves.

The Nifty and Sensex are two very another important term that needs to be understood before trading in the stock markets. Therefore, let us take a look at these.

Read also:Stock Exchanges in India – All in 1 List

What is Nifty?

National Stock Exchange Fifty or Nifty is the market index of NSE. So, it means that it is a collection of well established and financially strong 50 companies stocks (presently 51 stocks listed ) that are actively traded in the stock market.

Nifty is also referred to as Nifty 50 and CNX Nifty. This is regulated and owned by India Index Services and Products Ltd. (IISL) which is a subsidiary of NSE.

Read also:Stock Market Basics – Indian Stock Market for beginners

How is Nifty Calculated?

The free-float market capitalization weighted method is used to calculate Nifty.

Free-float methodology (FFM)

Free-float market capitalization is defined as that proportion of total shares issued by the available company share for trading in the market. It excludes government holding, promoters’ holding, strategic holding, and other locked-in shares. Actually, this type of shares normally does not come to the market for trading for common traders.

So, free-float methodology (FFM) is calculated as below,

FFM = Share Price x (Number of Shares Issued – Locked-In Shares)

Source: Investopedia

So, Nifty follows the above mathematical formula based on the market capitalization. Actually, this is the primary benchmark of NSE. The Index is determined on a daily basis by considering the current market value.

List of 50 consisting companies of Nifty (as of January 2019)

#Company NameIndustrySymbol
1. Adani Ports and Special Economic Zone Ltd.SERVICESADANIPORTS
2. Asian Paints Ltd.CONSUMER GOODSASIANPAINT
3. Axis Bank Ltd.FINANCIAL SERVICESAXISBANK
4. Bajaj Auto Ltd.AUTOMOBILEBAJAJ-AUTO
5. Bajaj Finance Ltd.FINANCIAL SERVICESBAJFINANCE
6. Bajaj Finserv Ltd.FINANCIAL SERVICESBAJAJFINSV
7. Bharat Petroleum Corporation Ltd.ENERGYBPCL
8.Bharti Airtel Ltd.TELECOMBHARTIARTL
9.Bharti Infratel Ltd.TELECOMINFRATEL
10. Cipla Ltd.PHARMACIPLA
11.Coal India Ltd.METALSCOALINDIA
12. Dr. Reddy’s Laboratories Ltd.PHARMADRREDDY
13. Eicher Motors Ltd.AUTOMOBILEEICHERMOT
14.GAIL (India) Ltd.ENERGYGAIL
15. Grasim Industries Ltd.CEMENT & CEMENT PRODUCTSGRASIM
16. HCL Technologies Ltd.ITHCLTECH
17. HDFC Bank Ltd.FINANCIAL SERVICESHDFCBANK
18. Hero MotoCorp Ltd.AUTOMOBILEHEROMOTOCO
19. Hindalco Industries Ltd.METALSHINDALCO
20. Hindustan Petroleum Corporation Ltd.ENERGYHINDPETRO
21. Hindustan Unilever Ltd.CONSUMER GOODSHINDUNILVR
22. Housing Development Finance Corporation Ltd.FINANCIAL SERVICESHDFC
23. I T C Ltd.CONSUMER GOODSITC
24.ICICI Bank Ltd.FINANCIAL SERVICESICICIBANK
25. Indiabulls Housing Finance Ltd.FINANCIAL SERVICESIBULHSGFIN
26.Indian Oil Corporation Ltd.ENERGYIOC
27. IndusInd Bank Ltd.FINANCIAL SERVICESINDUSINDBK
28. Infosys Ltd.ITINFY
29.JSW Steel Ltd.METALSJSWSTEEL
30. Kotak Mahindra Bank Ltd.FINANCIAL SERVICESKOTAKBANK
31. Larsen & Toubro Ltd.CONSTRUCTIONLT
32. Mahindra & Mahindra Ltd.AUTOMOBILEM&M
33. Maruti Suzuki India Ltd.AUTOMOBILEMARUTI
34. NTPC Ltd.ENERGYNTPC
35.Oil & Natural Gas Corporation Ltd.ENERGYONGC
36.Power Grid Corporation of India Ltd.ENERGYPOWERGRID
37. Reliance Industries Ltd.ENERGYRELIANCE
38. State Bank of IndiaFINANCIAL SERVICESSBIN
39. Sun Pharmaceutical Industries Ltd.PHARMASUNPHARMA
40.Tata Consultancy Services Ltd.ITTCS
41. Tata Motors Ltd.AUTOMOBILETATAMOTORS
42. Tata Steel Ltd.METALSTATASTEEL
43.Tech Mahindra Ltd.ITTECHM
44.Titan Company Ltd.CONSUMER GOODSTITAN
45.UPL Ltd.FERTILISERS & PESTICIDESUPL
46.UltraTech Cement Ltd.CEMENT & CEMENT PRODUCTSULTRACEMCO
47.Vedanta Ltd.METALSVEDL
48.Wipro Ltd.ITWIPRO
49.Yes Bank Ltd.FINANCIAL SERVICESYESBANK
50.Zee Entertainment Enterprises Ltd.MEDIA & ENTERTAINMENTZEEL

Nifty key Indices

As like Nifty 50, there are other key indices exist. The above list of Nifty 50 stocks belongs to 12 different sectors of the Indian economy.

image of 12 sectoral indices of nifty

Quick facts of Nifty 50

  • As on March 31, 2017, the Nifty 50 Index represents about 62.9% of the free float market capitalization of the stocks listed on NSE.
  • The base year is taken as 1995. The base value is set to 1000 for Nifty.
    Impact cost of the Nifty50 for a portfolio size of Rs.50 lakhs is 0.02% for the month March 2017.
  • Nifty 50 is ideal for derivatives trading in the stock market.
  • Nifty 50 stocks are selected from topmost companies of different 12 sectors.

Read also:Bull and Bear market in the Indian Stock Market

What is Sensex?

Sensitive Index or Sensex is the stock market index indicator as well as the benchmark index of the BSE(Bombay Stock Exchange). Sensex also was known as BSE 30. It consists of 30 well-established and financially sound companies of BSE.

How to calculate the Sensex?

Let’s, understand the calculation of Sensex with a simple example. So, assume that the Index consists of only 2 stocks: Stock X and Stock Y.

For instance, company X has 2000 shares in total and 400 shares of them are held by the promoters. Therefore, only 1600 shares are available for trading for the common traders. So, these 1600 shares are called free-floating shares.

Similarly, company Y has 3000 shares in total and 1000 of them are under the government holding or any strategic holding. So, rest of 2,000 are free-floating shares for company Y.

Now, assume that the current market price of stock X is Rs 200.

Total market capitalisation of company X = 2000×200 = Rs 400000

So, free-float market capitalisation of company X =1600×200= Rs 320000

Similarly, suppose the current market price of stock Y is Rs 300

Total market capitalisation of company Y = 3000×300 = Rs 900000

So, free-float market capitalisation of company Y =2000×300=Rs 600000

So, for the current day

Market capitalisation of the index = 400000+900000 = Rs 1300000

Therefore,
Free-float market capitalisation of the index =320000+600000 = Rs 920000

The year 1978-79 is considered as the base year of the index and 100 set as the base value.

Let’s consider the market capitalisation of the stocks at that time was 50000 (may have some other stocks in the index list at that time).

So,
Index market cap of 50000 = index-value of 100.

The factor 100/50000 is called index divisor.

Therefore,
Value of the index or Sensex for the current day
= Free-float market capitalisation of that day x index divisor
= 920000x 100/50000
= 1840

This is how the Sensex is calculated.

List of 30 consisting companies of Sensex (as of January 2019)

#Name of the company Industry Name Market cap
1. Housing Development Finance Corporation Ltd.Finance – HousingLarge Cap
2.CiplaPharmaceuticals & DrugsLarge Cap
3.State Bank Of IndiaBank – PublicLarge Cap
4.Dr. Reddys Laboratories Ltd.Pharmaceuticals & DrugsLarge Cap
5.HDFC Bank Ltd.Bank – PrivateLarge Cap
6.Hero MotoCorp Ltd.Automobile Two & Three WheelersLarge Cap
7.Infosys Ltd.IT – SoftwareLarge Cap
8.Kotak Mahindra Bank Ltd.Bank – PrivateLarge Cap
9.LupinPharmaceuticals & DrugsLarge Cap
10.Oil & Natural Gas Corporation Ltd.Oil ExplorationLarge Cap
11. Reliance Industries Ltd.RefineriesLarge Cap
12. Tata Steel Ltd.Steel & Iron ProductsLarge Cap
13. Larsen & Toubro Ltd.Engineering – ConstructionLarge Cap
14. Mahindra & Mahindra Ltd.Automobiles – Passenger CarsLarge Cap
15.Tata Motors Ltd.Automobiles-Trucks/LcvLarge Cap
16. Hindustan Unilever Ltd.Household & Personal ProductsLarge Cap
17.Asian Paints Ltd.PaintsLarge Cap
18.ITC Ltd.Cigarettes/TobaccoLarge Cap
19.Wipro Ltd.IT – SoftwareLarge Cap
20.Sun Pharmaceutical Industries Ltd.Pharmaceuticals & DrugsLarge Cap
21ICICI Bank Ltd.Bank – PrivateLarge Cap
22. Axis Bank Ltd.Bank – PrivateLarge Cap
23. Bharti Airtel Ltd.Telecommunication – Service ProviderLarge Cap
24. Maruti Suzuki India Ltd.Automobiles – Passenger CarsLarge Cap
25. Tata Consultancy Services Ltd.IT – SoftwareLarge Cap
26. NTPC Ltd.Power Generation/DistributionLarge Cap
27. Power Grid Corporation Of India Ltd.Power Generation/DistributionLarge Cap
28. Adani Ports and Special Economic Zone Ltd.PortLarge Cap
29. Bajaj Auto Ltd.Automobile Two & Three WheelersLarge Cap
30. Coal India Ltd.Mining & MineralsLarge Cap
31. Tata Motors – DVR OrdinaryAutomobiles-Trucks/Lcv

Note: As of 29 Aug 2017, SENSEX constituted of 31 companies as TATA Motors also has DVR in the Sensex 30 list.

Quick facts of Sensex

  • The base year of Sensex is 1978-79, and the base value of Sensex is 100.
  • The basis of the free float market capitalization 30 companies are selected for the Sensex 30 from different sectors.
  • SENSEX is the most popular index of the Indian stock market.
  • So, the purpose of the Sensex is to capture the value movement of the equity market.

Read also:Which is better BSE or NSE?

Bottom Line

Both the Nifty and Sensex are stock market index used to determine the value and strength or weakness of the Indian stock market. So, indices used for sorting and comparison of the various companies.

Basically, it is work as a barometer of investor’s sentiments. These two benchmark indices give a general idea about that most of the stocks have gone up or gone down.

NSE is more diversified and has more stocks listed as compared to BSE. Therefore, the intraday traders opt for Nifty as they find it easy to buy or sell as the volume is high and high liquidity.

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