What is an index ?
Sensex and Nifty are the stock market indices (singular form = index; plural form = indices) in India. An index is the numeric representation of the value of something like inflation, pollution, etc. It also indicates the change in that particular value over the period of time. We read about CPI and WPI in a recent article, the CPI index and WPI index tell us about the inflation and the change in the inflation.
Also read 👉 CPI and WPI Inflation
The ‘Sensex’ and the ‘NIFTY’ are the indices of our share market that represents the overall movement of the securities market. Both Sensex and Nifty represent the top listed companies in India. These two indices represent the whole stock market. The movement of these indices determine the overall performance of the Indian stock market.
What is a ‘listed company’ ?
A listed company is a business that is registered with stock exchanges such as NSE or BSE. The stock market regulator, such as SEBI, registers the company and gives permission to that company/business to list itself with the stock exchanges. This process of listing allows the company to sell its shares to the public. By listing the company, the shares of the company became available for trading in the stock market. The listed companies must comply with the stock market regulator.
Also read -➡️ What is Stock Market ?
Also read 👉 SEBI (Securities and Exchange Board of India)
The Sensex and the NIFTY
Sensex – Index of BSE
The Bombay Stock Exchange is the stock exchange in Mumbai, Maharashtra. Sensex is the key index of the BSE (Bombay Stock Exchange). The index (Sensex) represents the top 30 listed companies in the Bombay Stock Exchange. In 1986 – introduction of the Sensex. The Sensex is a free-float, market-weighted stock market index. The name ‘Sensex’ comes from two words, ‘Sensitive’ and ‘Index’. Therefore, Sensex = Sensitive + Index. The index, which shows the sensitivity of the stock market.
The BSE has thousands of companies as the listed companies. But the Sensex only represents the top 30 companies from the different sectors of the economy. Such selection of companies from different sectors actually represents the movement of the overall stock market.
Check here ⇾ BSE Sensex 30 companies
Check here ⇾ The BSE top 100 companies
The top 30 companies represent different sectors of the economy like IT, Banking, Automobile, Finance, Cement, Telecommunication, Energy, FMCG, Petroleum, Consumer durables, pharmaceuticals, etc. The ‘BSE Sensex’ consists of the top performing companies across these sectors.
The Sensex, a key stock market index in India, is revised twice a year. In June and December, the Sensex undergoes a review process where companies are evaluated based on their performance. Companies may be removed or added to the index based on this evaluation. The inclusion of a company in the Sensex is not permanent. If a company delivers poor performance over a period, it can be removed from the Sensex list. This process ensures that the index remains representative of the top-performing companies in the market.
Nifty – Index of NSE
Nifty is the key index of the National Stock Exchange (NSE). The NSE is a stock exchange based in Mumbai, Maharashtra. The Nifty represents the top 50 listed companies on the National Stock Exchange (NSE). It was launched in 1996. The name ‘Nifty’ is made of two words, ‘National’ and ‘Fifty’. So, Nifty = National + Fifty. The index represents the top-performing 50 companies listed with the NSE.
Just like the Sensex, the Nifty also takes into account companies from different sectors of the economy. Similar criteria are followed, and the top-performing listed 50 companies are chosen for the Nifty 50 index.
Check here ⇾ NSE Nifty Companies
The revision of the Nifty 50 list takes place every six months, i.e. Twice a year. One can check the updated list on the official website of the NSE.