Nifty, Sensex, and Bank Nifty

Published by Sharekhan Education | March 31, 2023

By Fahim Ansari

Introduction:

Nifty, Sensex, and Bank Nifty are stock market indices in India that track the performance of different stock market sectors. Said, it is a hypothetical statistical metric that represents the market performance of equities. The Sensex and Nifty are two of India’s most widely used stock market indexes. Indian investors can follow the performance of these indexes over time to compare their investment performance.

How are indices constructed? 

Market indices are constructed using various factors, including market capitalization, market segmentation, and the nature of the underlying industry. Once the indices are constructed, stocks from various companies that satisfy the criteria above are chosen.

Nifty, also known as the Nifty 50 or the National Stock Exchange Fifty, is an index of India’s National Stock Exchange (NSE). It tracks the performance of the top 50 companies listed on the NSE across 24 sectors of the Indian economy,  including banking, IT, energy, etc.  Market capitalization and liquidity determine the selection of these companies.  

Sensex, also known as the BSE Sensex or the Bombay Stock Exchange Sensitive Index, is India’s oldest stock market index. It tracks the performance of the top 30 companies listed on the Bombay Stock Exchange (BSE) across different sectors of the Indian economy. Bank Nifty is a sectoral index of the NSE that tracks the performance of the top banking and financial services companies listed on the NSE.

The Bank Nifty is also a stock market index traded on the NSE, representing the top 12 banking and financial services companies listed on the NSE.

The calculation of these indices involves taking the weighted average of the stock prices of the constituent companies. The weightage of each stock is determined based on its market capitalization or free-float market capitalization. The index is then calculated using a formula that considers the current prices of the constituent stocks and the base year prices of these stocks.

Types of Indices:

Sectoral Indices:

These cover companies operating in a specific market segment, like S&P BSE Auto, S&P BSE Capital Goods, Nifty Auto, etc. Here, analysts measure stock performance relative to their sector performance.

Thematic Indices:

Thematic indices are NSE indices that show the performance of companies that belong to a certain type of investment, such as social, economic, digital, or other. These indices include companies from different industries with the same theme, while sectoral indices only include companies from the same industry.

Broad Market Indices:

These indices represent the most significant and liquid stocks listed on the exchange. Investors use them as a standard to measure the performance of individual stocks or investment portfolios, such as mutual fund investments. 

In conclusion:

You can open a trading account with a registered stockbroker in India to trade Nifty, Sensex, and Bank Nifty. You can then buy and sell shares of individual companies that are part of these indices. Alternatively trade-in index futures, options, and exchange-traded funds (ETFs) available on the stock exchanges. It is important to note that trading in the stock market involves a certain level of risk. Each of you should do your own due diligence, research, and seek professional advice before investing your money.

Disclaimer:

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