For those who are new to the stock market, the terms Sensex and Nifty can be confusing. What do they mean and why are they named as such? Some people even try to buy Sensex or Nifty shares, not realizing that it is not possible. In this article, we will explain the significance of these terms and clear up any confusion.
Firstly, it is important to understand that the stock market is where we buy shares or stocks of companies. However, there are two exchanges in the Indian stock market – the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Approximately 5000 companies are listed on the BSE, while around 1600 companies are listed on the NSE. Approximately 5000 companies are listed on the Bombay Stock Exchange and on NSC almost 1600 companies are listed. Now people say that there will be different companies, that is, the companies listed on NSE are not listed on BSE, but it is not like that. The share, let’s say the share of ITC, you have to buy, you will get it on NSE and you will get it on BSE. India’s stock exchange is a little different, a little different from the outside.
It is a common misconception that different companies are listed on each exchange. In reality, shares of the same company can be bought on both exchanges. For example, the shares of ITC can be bought on both NSE and BSE.
Now, let’s move on to the terms Sensex and Nifty. Sensex is short for Sensitive Index and is the benchmark index of the BSE. It is used to measure the performance of the top 30 companies listed on the BSE based on market capitalization. Nifty, on the other hand, is short for National Stock Exchange Fifty and is the benchmark index of the NSE. It is used to measure the performance of the top 50 companies listed on the NSE based on market capitalization.
So, why can’t you buy Sensex or Nifty shares? The answer is simple – they are not actual shares of any company. They are just indices that track the performance of the top companies listed on their respective exchanges. You can, however, invest in mutual funds or exchange-traded funds (ETFs) that track these indices.
Sensex and Nifty are important benchmarks that help us measure the performance of the Indian stock market. They are not actual shares that can be bought or sold, but rather indices that track the performance of the top companies listed on the BSE and NSE. Understanding these terms is crucial for anyone looking to invest in the Indian stock market.
The stock market is like a marketplace where you can find various stocks, similar to different shops in a wholesale or superstore. Just like these supermarkets, the stock market provides a wide range of stocks to choose from. While popular stocks like Reliance and Tata Steel are available on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), there are generally more companies listed on the BSE.
To simplify the process of monitoring stock prices in the entire market, indexes such as Nifty and Sensex have been created. These indexes serve as benchmarks to gauge the overall performance of the stock market and track whether prices are rising or falling.
Sensex is a combination of the words “sensitivity” and “index,” symbolizing market sensitivity. It helps to understand the market’s overall sensitivity to changes and fluctuations in stock prices. On the other hand, Nifty is derived from the words “national” and “fifty.” The name “Nifty” represents the National Stock Exchange and the fact that it consists of the top 50 companies in India.
However, it’s important to note that Nifty also includes variations such as Nifty 100 and Nifty 200, which represent larger sets of companies. Nifty 100 includes the top 100 companies after the Nifty 50, and Nifty 200 includes the top 200 companies. These indexes provide investors and market participants with a convenient way to assess the performance of a specific group of companies within the stock market.
In addition to the overall market indices like Nifty and Sensex, there are sector-specific indices that track the performance of specific industry sectors. These sector-wise indices provide insights into the performance of companies within a particular sector. Some examples of sector-wise indices include Nifty FMCG, Nifty Auto, and Nifty IT.
For instance, Nifty FMCG represents the Fast-Moving Consumer Goods sector and consists of the top FMCG companies in India. The movement of this index reflects the performance of FMCG companies in the stock market. Similarly, Nifty Auto tracks the performance of the automobile sector, while Nifty IT focuses on IT companies.
By monitoring these sector-wise indices, investors and market participants can gain a better understanding of how specific sectors are performing within the overall stock market. It allows them to analyze sector-specific trends and make informed investment decisions accordingly.
For example, if you want to know which sector has shown significant growth or improvement, you can look at the performance of sector-wise indices. If Nifty FMCG has shown a significant increase in its value, it indicates positive growth in the FMCG sector. Similarly, if Nifty IT has experienced a decline, it suggests a potential downturn in the IT industry.
These sector-wise indices complement the broader market indices like Nifty and Sensex by providing a more focused view of specific sectors within the stock market. They help investors and analysts gauge the performance of individual industries and make sector-specific investment strategies.
It is important to understand that you cannot directly buy or invest in indices like Sensex or Nifty because they are not individual stocks. They serve as indicators of market performance and do not represent shares or ownership in themselves.
However, you have two options to benefit from the performance of Nifty or its constituent companies. Firstly, you can invest directly in the stocks of the companies that are part of Nifty 50. These companies are reviewed and selected every six months based on their performance. By researching and selecting individual stocks from Nifty 50, you can invest in them through a brokerage account.
Secondly, you can choose to invest in Nifty-based mutual funds. These mutual funds are designed to replicate the performance of Nifty by investing in the stocks that constitute the index. By investing in these mutual funds, your money indirectly becomes invested in Nifty. There are Nifty based mutual funds, you can invest in them, so your money will be invested in Nifty in the future, now these are the two ways, one can invest in Nifty, and the reason is because it is an index, it is not a stock, there is a price, but it is not a share in itself, to buy them, you have to take the support of mutual funds or you have to identify the companies that come in Sensex and Nifty and then have to buy the stocks of those companies.
To start investing in the stock market or engage in trading activities, you will need a Demat and Trading account. Opening a Demat account will enable you to hold and trade stocks electronically.
If you found this blog helpful, share it to help others clear their doubts about the stock market. Open your Demat account and begin your investing journey. Until next time, stay self-made.