The Indian stock market is huge and gigantic and has thousands of shares listed on it. Every trader or investor is looking for one or the other odds or different criteria to find their best bet. This is when the indices like the NIFTY 50 or Sensex come into the picture.
Because indices play a critical role in determining the flow of stocks in a particular direction, they are considered the stock market’s “barometer.” Let us look at the two prominent indices of the Indian stock market in more detail and also know the major differences between them.
What is the stock index?
In finance, index refers to a subset of the stock market that makes it easier to determine the overall performance of the stock market. Index, consists of a basket of stocks that track the performance of these securities and further helps measure the overall sentiment of the stock market. Index is also referred to as an indicator that serves as a benchmark to analyze the performance of a portfolio’s return.
In addition, stocks in the index do not only belong to a specific sector, such as pharmaceuticals and banks, but are drawn from all major sectors. So indices help us to show the general picture and not just a specific sector of the stock market. One can also invest in stock indices through various mutual funds and exchange-traded funds (ETFs).
In the Indian context, there are two main exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Sensex is an index that belongs to the BSE and NIFTY 50 belongs to the NSE.
The stock indices are useful for several reasons, such as:
Provides a historical comparison of the returns on funds invested in the stock against other investments such as gold or debt. Used as a standard to compare the performance of an equity fund. Main indicator of the performance of the general economy or a particular sector. Display very current information. What is Sensex?
The Sensex is one of the oldest exchanges in India. It includes a total value of 30 shares of companies listed on the BSE. Indeed, these stocks are among the largest companies in India and thus represent the performance of the Indian economy in general.
To simplify, if the Sensex moves up, the investors or traders in the market will prefer to buy shares and on the other hand, if the Sensex moves down, the investors or trader will prefer to withhold their positions. The sensex movements are monitored regularly, which helps to analyze overall growth, industry related development.
Below are the criteria used in selecting the Sensex’s 30 stocks: Shares must be listed on the BSE.Large cap stocks with high market capitalization.High liquidity.Average daily turnover.Broad industry representation.What is NIFTY 50?
The NIFTY 50 is the flagship index of the National Stock Exchange and one of the most recognized stock indices in India. It tracks a total of 50 stocks of major companies related to various sectors and industries. The NIFTY 50-based stocks are all large-cap oriented companies that make up nearly three quarters of the total capitalization in India. NIFTY 50 helps benchmark fund portfolios, launch index funds, ETFs and other structured products.
Below are the criteria used in selecting the 50 stocks of NIFTY 50: Shares must be listed on the NSE and must be included in NSE’s list of futures and options. The registered office of the company must be in India.Large cap stocks with market capitalization up to INRHigh liquidityHigh volumeDifference between Sensex and NIFTY 50?
The Nifty 50 and Sensex are very similar and so are often used for the same purpose. But in practice they are quite different from each other. Let’s take a closer look at these two indices – Sensex and NIFTY 50, to know the differences between them.
*Please note that the above effects are not recommended. Past performance is not an indication of future returns.
Whether you are a seasoned investor or about to kick-start your investment journey, you can easily gauge the market sentiment or value of the specific stock by reading the NIFTY 50 or Sensex moves and price trends. The indices simply work based on picking the best stocks from a huge list of different segments and then placing them in one form of basket such as NIFTY 50 or Sensex. This further helps the investors to analyze trends of a particular sector and make investment decisions accordingly.
Frequently Asked Questions (FAQs) How can I invest in the NIFTY 50 Index?
One can invest in convenient mutual funds, exchange traded funds and convenient futures and options.
What parameters can affect the performance of an index?
The index is largely influenced by inflation, interest rates, foreign and domestic institutional investment, currency movements.
Which is a better index: Sensex or NIFTY 50?
Well, both NIFTY 50 and Sensex are the most prominent indices of India. They are both widely regarded by the investors. However, the volume and number of inventories are higher on NIFTY 50 compared to the BSE.
What are the market timings for NIFTY 50 and Sensex?
You can access Sensex and NIFTY 50 on weekdays, such as Monday through Friday from 9:15 AM to 3:30 PM. See the list of the NSE and the BSE market holidays for more up-to-date information.
What are the benefits of indexes?
Indices, whether NIFTY 50 or Sensex, both are useful because they serve as a solid benchmark against which to measure the investment performance of a particular portfolio. Indices also provide a convenient snapshot of a general market sector or general market sentiment, without analyzing each individual stock in that index.
Do the US and India have the same number of indices?
No, the US has three leading indices, such as the Dow Jones, S&P 500 and the Nasdaq Composite. However, India has two leading indices such as Sensex and NIFTY 50.