BSE, NSE, Sensex, and Nifty / bank nifty index are very popular terms that come up when the Indian stock markets are discussed. Here is a brief explanation of what each of them stands for and means:
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Table of Contents
BSE
BSE is a short form for Bombay Stock Exchange that was the first stock exchange in India which was started in 1875. It is situated at Mumbai, and also called BSE Mumbai. By the end of 2022, BSE has the 11th position among stock exchanges around the world by market capitalization. Over 5000 companies are enlisted on the BSE and these are in various sectors.
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NSE
NSE is the abbreviation of the National Stock Exchange of India Limited. Mumbai is the biggest stock exchange in India and it is the leading one in India. NSE was incorporated in 1992 as the first demutualized electronic exchange in India. NSE has more than 2000 companies listed with total market capitalization of over INR 258 trillion as on January 2023.
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Sensex
BSE Sensex, commonly called S&P BSE SENSEX, is a benchmark index of BSE, comprising 30 major companies listed on the exchange. The BSE Sensex today comprises of about 45 percent of the total market capitalization of BSE. It is a broad-based index covering the auto, IT, consumer goods, healthcare, telecom etc. sectors.
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Nifty
Nifty 50 is the flagship index of the NSE, representing the weighted average of 50 major companies listed on the exchange across 13 sectors. Nifty accounts for over 60% of the market capitalization of the NSE. It is used to reflect the overall direction of the market. There are also other Nifty indices, like Nifty Bank, Nifty Auto, Nifty Metal, etc., that represent sectoral performance.
What do they signify?
The Sensex and nifty are barometers of the Indian economy and stock market sentiment. The bank nifty index represents banking sector stocks. The movement in these indices represents the fluctuating market conditions driven by economic, political, and global factors.
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Index composition
The companies that comprise Sensex and Nifty keep changing periodically based on criteria like market capitalization and liquidity. Companies that perform poorly over the long term get replaced by better-performing ones. This ensures the indices remain reflective of the current market leaders.
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Index calculation
The Sensex and nifty values are calculated using the free-float market capitalization-weighted methodology. This means the market cap of constituent companies adjusted for foreign ownership is used to assign weights to arrive at index values.
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Investing in indices
Retail investors can invest in Sensex, Nifty, and Bank Nifty through index funds and ETFs that replicate the index portfolio. Derivatives like index futures and options allow one to trade the direction of the indices as well.
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Significance for investors
The Sensex and nifty help gauge the overall market direction. Monitoring the indices gives investors perspective on the health of the Indian stock market. However, equity investment should be based on individual stock fundamentals and not just index levels.
Conclusion
In summary, BSE and NSE are stock exchange platforms, while Sensex and Nifty are market barometers. Grasping the key differences between these commonly used terms in Indian capital markets empowers investors to make informed investment decisions aligned with their goals.