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What Are Sensex And Nifty In Simple Words - Stock Market Perfect Knowledge

Friends, we often hear about Sensex and Nifty, sometimes it goes up and sometimes it goes down, but after all what are Sensex and Nifty? How does their value go up or down? And how important is this? If this question also comes to your mind, then this small but very informative article is for you. Today you will know the answers to all these questions in this article.

What Are Sensex and Nifty
What Are Sensex And Nifty


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What are Sensex and Nifty For Beginners?

In the share market, companies collect the investment from the public by bringing IPO and there are only two platforms in the Indian share market through which a company can bring IPO, these platforms we call stock exchange. The first exchange is BSE (Bombay Stock Exchange) and the second stock exchange is NSE (National Stock Exchange). If a company wants to bring IPO, then it can bring it on BSE or NSE or both. If the company takes IPO from BSE, then it will be said that the company is listed only on BSE, similarly, the company can also be listed on NSE. Income then both can be listed on the stock exchange.

If we want to know how a particular company is performing, then we can track the performance of that company, but we want to know how both the stock exchange-listed big companies are performing then what will we do? The index has been created to solve this problem. BSE has named its index Sensex, whose full name is Sensitive Index and NSE has named its index Nifty, whose full name is National Fifty. About five thousand five companies are listed on the BSE, out of which the Sensex tells the performance of the largest 30 companies, similarly up to two thousand companies are listed on the NSE, out of which Nifty tells the performance of the top 50 companies.


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How An Index Is Made? | What is a Free Float Market Cap?

There are index construction methods but the method which is followed in India is called the free float method. Both Sensex and Nifty are index based on this method. In the index made by this method, such companies are kept which have the highest free-float market cap, and the way to calculate free-float market cap is as below.

Free float market cap = Number of free float shares × Price of one share

Free Float Shares: Free float shares are those shares that are available for trading with the public. Let us understand this with an example, Mr. X divided his company ABC for a total of 10 crores, and at the time of IPO Mr. If X sold 1 crore shares out of 10 crores to the public, then here the free float shares would be 1 crore because only 1 crore of these shares is available to trade with the public. If at present the share price of ABC Company is Rs 10, then by the formula of free-float market cap, the free-float market cap of ABC Company will be 10 crores. So by the same method, 30 companies with the highest free-float market cap are placed in Sensex and 50 companies in Nifty are also kept in the same way.


How Sensex and Nifty Go Up and Down? | How to know share market up and down

We understand by example how the Sensex and Nifty are up or down. Suppose you are government and you are running a stock exchange named Govex, there are two companies listed on it, the first company is A and second is B, we have created an index today to track the performance of both our companies together. Hey, whose name we have named Govdex, let's say a company has 100 free float shares and the price of one share is Rs 10, then the free-float market cap of A company will be Rs 1000. Similarly, suppose B Company has 200 free-float shares, one share price is Rs 20, and then B Company’s free float market cap will be Rs 4000. If we add both the companies' float market cap then the free float cap of the index Govdex will be Rs 5000.

To start any index, a base value has to be taken; we keep the value of our index Govdex as 100. Before the market started today, the free-float market cap of your index was Rs 5000 and the value of the index Govdex was 100. The market opened this morning and people traded A and B company shares after the market closed in the evening, the price of a share of A company became Rs 9 and the price of a share of B company was Rs 22, now if the share price of A company is Rs. Calculating the free-float market cap, it came down to Rs.900 and that of B to Rs.4400. If we add plus or minus the free-float market cap of both the companies, it has increased from 5000 to 5300 rupees. Now calculating this, the free-float market cap has increased by 6%, which means your index Govdex will also increase by 6%, and now its value will increase from 100 to 106.

Friends, this is how the Sensex Nifty goes up or down. When the free-float market cap of Sensex or Nifty is up or down as compared to the previous day, the value of Sensex or Nifty also closes up or down by the same percentage.


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How important are Sensex and Nifty? | Why Sensex and Nifty is Important to the Nation

Any stock market index is called a barometer of the economy of that country because any index shows the performance of large companies of that country. By looking at the performance of Sensex and Nifty in India, we can tell the condition of India's economy. A rising index indicates economic growth in the long term, while a decreasing index indicates an economic slowdown in the long term. For these reasons, stock market indexes become very important to understand general economic health.



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