BASIC GUIDE TO STOCK MARKET INDICES SENSEX AND NIFTY.


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BASIC GUIDE TO STOCK MARKET INDICES SENSEX AND NIFTY.

BASIC GUIDE TO STOCK MARKET INDICES SENSEX AND NIFTY INTRODUCTION • In India, Nifty and Sensex are important stock indices, which determine or depict the strength of the stock market. – For equities, Sensex is the oldest market index, and includes shares from the top 30 companies listed on the Bombay Stock Exchange (BSE). – Nifty on the other hand includes shares from the top 50 companies listed on the National Stock Exchange (NSE). Source: IndiaInfoline WHAT IS AN INDEX? • The statistical aggregate that measures change, such as market performance or price movement is the index. • There are two large cap indices in the Indian stock market, which are the S&P BSE Sensex, and the S&P CNX Nifty. Source: YouTube WHAT IS SENSEX? • Sensex is the stock market index of the Bombay Stock Exchange (BSE). With a base value of 100, Sensex is the market-weighted stock index which includes shares from the top, well- established 30 companies. • Furthermore, Sensex is calculated by using the free-float market capitalization method, and the performance of the 30 selected stocks is directly reflected by the level of the index. Source: Niveshak WHAT IS NIFTY? • The National Stock Exchange Fifty (Nifty) is the stock market index of the National Stock Exchange (NSE). • The base value of the index is 1000, and it is computed using the free-float market capitalization weighted method. Source: The Financial Express STOCK MARKET INDEXES • There are stock market indexes of various sectors of the market that don't always move in tandem. • We need to understand how stock market indexes are created and how they differ in order to be able to make sense of the daily movements in the Indian marketplace. Source: Investopedia S&P BSE SENSEX (ALSO CALLED BSE 30 OR SENSEX) • SENSEX (or SENSITIVE INDEX) was created in 1986 and is the oldest stock market index for equities. • It comprises of shares of 30 well-established and financially sound companies listed on BSE. These companies represent various industrial sectors of the Indian economy. Source: IndiaInfoline CALCULATION OF SENSEX • SENSEX has adopted the market capitalization weighted method in which weights are assigned according to the size of the company. Larger the size, higher the weightage. • The total value of market shares at the time of creation of index is assumed to be100 points. • This is for the purpose of logically representing the change in terms of %. So, if the market capitalization moves up 10%, the index also moves10% to 10. Source: WealthTrust S&P CNX NIFTY (ALSO CALLED NIFTY 50 OR NIFTY) • NIFTY was created in 1996 and comprises of 50 shares listed on the National Stock Exchange. • It covers 24 sectors of the Indian economy and offers investors exposure to the Indian market in a single portfolio. Source: NCFM Academy CALCULATION OF NIFTY • NIFTY is calculated using the same methodology adopted by the Bombay Stock Exchange in calculating the SENSEX. However, there are three basic differences: – The base year taken is 1995 (SENSEX is 1979) – The base value is 1000 (SENSEX is 100) – NIFTY is calculated on 50 active stocks traded in the NSE (SENSEX is calculated on 30) Source: Stocks4all IMPORTANCE OF MARKET INDEX • The market indexes are the barometer for market behavior. It gives a general idea about whether most of the stocks have gone up or gone down. • Often, Market Index is used as a benchmark portfolio performance. • It is used as a reflector of investor’s sentiments. • Market indexes are used for sorting and comparison of the various companies. • Indices act as an underlying for Index Funds, Index Futures, and Options. Source: NividBook