“NIFTY and SENSEX rises to all-time high and recorded its lowest numbers of the month”, we all have heard this at least once on television or radio or read it in magazines, newspapers, or journals but it may sound like noise to a deaf person.
It is so because most of us don’t have any clue about the workings of the Indian stock market.
What is the stock market? The stock market is a marketplace where investors sell and buy stocks i.e shares, bonds, and derivatives. Indian stock market consists of mainly two stock exchanges named Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
BSE was founded in 1875 and is listed with 5,518 firms in February 2020. NSE was founded in 1992, started its operations in 1994 and in December 2020, it is listed with 1,799 firms. BSE is older than NSE but NSE is much larger than BSE in terms of volume, daily trading, and turnover.
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NIFTY and SENSEX
The stock market is loaded with thousands of companies which makes the investors strenuous about picking and investing in the right stock.
A proper system is required to battle this problem and organise it in a user-friendly format. This is where NIFTY and SENSEX comes in.
NIFTY and SENSEX are stock market indices. They are responsible for organizing a systematic group of similar stocks from the market which should be statistically accurate.
These indexes are formed by grouping similar stocks from markets or exchanges which in turn serve as a base for investors in selecting the right stock according to their needs.
NIFTY stands for National Stock Exchange Fifty and is the stock market index for NSE. SENSEX stands for Stock Exchange Sensitive Index and is the stock market index for BSE.
Almost every important company is listed on both the stock markets. SENSEX holds the shares of 30 firms listed on the BSE whereas NIFTY holds the shares of 50 firms listed on NSE.
Crucial Role played by NIFTY and SENSEX
You must be wondering why these two indexes are important for the working of stock exchange markets. Here are some significant roles played by NIFTY and SENSEX in the marketplace:
- Indicator of the stock market’s condition: The most crucial role played by the indexes is the determination of the market condition. They work as an indicator that shows the overall performance of the market. Investors use this information to decide where they should invest.
- Helps in choosing the right stock: The stock exchange market is filled up with thousands of companies which can be confusing for the investor in choosing the right stock. Without prior knowledge of the stock market, it can also result in losses. In midst of this, the indexes play the role of a differentiator by categorizing stocks according to the size of the company, industry, sector, and more.
- A reflector of investor’s sentiments: Another crucial role carried out by stock market indices is the mirroring of the sentiments of an investor. Prices of stocks vary every day and this happens because of reasons like the political upheaval, elections, recession, and more. This in turn helps an investor to pick the right stock which will prove to be fruitful according to their needs.
- Helps in filling up the knowledge gap: Understanding the working of the stock exchange market is very time-consuming. It is a long process and without prior knowledge, engaging in the stock exchange can be risky for the investors. Indexes help an investor to fill up this knowledge gap by providing the performance of the whole stock market of a particular group in one place.
The stock exchange market is a significant part of the Indian economy. It reflects the overall condition of the economy. BSE and NSE are two main stock exchanges in India.
NIFTY and SENSEX are crucial to investors in the field of buying and selling stocks. They are representatives of an investor’s sentiments and determine the overall performance of the market. They help investors to pick up the right stock to invest in by filling in the knowledge gap of the marketplace.