What do Sensex, BSE, NSE, and Nifty Mean?
Do you constantly hear the terms Sensex, BSE, NSE, and Nifty? They form the foundation of the Indian stock market. Here’s a guide that explains what these terms mean.
What are BSE and NSE?
BSE is short for the ‘Bombay Stock Exchange’. Founded in 1875, BSE is the first and one of the largest securities markets based out of Mumbai in India. NSE is short for the ‘National Stock Exchange’. Founded in 1972, it offers a country-wide stock market similar to BSE. While BSE is older, NSE is larger with greater daily trades and a higher turnover rate.
What are Sensex and Nifty?
While BSE and NSE are stock markets, both Sensex and Nifty are stock market indices. A stock market index summarises the movements of the market in real-time. A stock market index is created by grouping together similar kinds of stock. Sensex, which stands for ‘Stock Exchange Sensitive Index’, is the stock market index for the Bombay Stock Exchange. Nifty stands for ‘National Stock Exchange Fifty’ and is the index for the National Stock Exchange.
Types of Stock Market Indices:
There are a variety of stock market indices in India. Some of them are:
It indicates the whole market and is a comparative measurement displaying the amount earned by the average fund on the market versus the amount it should have earned. eg: BSE Sensex, NSE Nifty (Nifty 50).
Broad Market IndexThey are benchmark indices with bigger groups of stocks. eg: BSE 100. BSE Sensex aggregates the movements of the 30 biggest financially sound Indian companies listed on BSE. The BSE 100 aggregates the top 100 biggest companies.
Market Capitalization IndexAn index where companies are measured according to the total market value of their outstanding shares. eg: BSE Smallcap, BSE Midcap.
Sectoral or Industry-based IndexIt gives a performance summary of stocks in certain industries like healthcare, energy, industrial goods, technology, etc. CNX IT, Nifty FMCG Index.
Significance of a Stock Market Index
Stock market indices like Sensex and Nifty depict the condition of the market briefly. They help investors discover patterns in the market. The following reasons are why the stock market index is necessary for investors:
Helps You Pick The Right StocksOne share market has thousands of companies listed, making it intimidating and tedious to discover the right stock to invest in. Without a benchmark index, differentiating between stocks is easier. It classifies the shares of companies based on industry type, size, financial impact etc.
Convenient Metric for BeginnersEquity investing can be a high risk, especially for beginners. While learning about the stock market is recommended, it might prove impractical for some people as it is time-consuming. Here, the stock market index like BSE Sensex and NSE Nifty bridges the knowledge gap with simple depictions of trends in the market.
Reflects Sentiments of InvestorsThese indices summarise the daily sentiments of investors trading on them. For example, during a political change, certain stocks start underperforming indicating uncertainty or nervousness about new reforms. Understanding the underlying sentiments shows investors whether a trend is short-term or long-term.
Passive InvestmentPassive investment is when an investor duplicates the stocks in a high-performing index by investing in a similar portfolio of securities. It is called passive investing because it is quicker, requires less research, and multiple stocks in a portfolio are bought in a single click. The replica portfolio’s returns should resemble the returns shown by the index.
Sensex and Nifty are essential to buy and sell stocks on BSE and NSE. There are a variety of indices that summarise stock performance based on sector, company size, and other features. Indices help to pick stocks faster, discover investor sentiments and aid in convenient passive investing.