In India, stocks are traded on the two main stock exchanges – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). While the BSE is the oldest stock exchange in the country, NSE is the biggest in terms of transactions. Between them, equities of nearly 7,000 companies change hands every day.
While tracking a few stocks may be easy for an individual on a day-to-day basis, but to gauge the overall health of the market requires a sort of averaging the movement of all the stocks.
Exchanges worldwide have devised a complex method of selecting stocks that will represent most stocks in the market and inform observers of the health of the market. This group of stock that is scientifically selected is called an index.
There are now a number of sub-indices that are being constructed to represent a group of stocks like the sector indices, the small company indices, and so on. In this essay, we shall look at what at the market indexes of the two Indian Exchanges.
A market index measures the price performance of a group of assets in the market. The basket of stocks selected to be represented in the index are the Crème-de-la-crème of the country and are generally the market leaders in their sector.
These benchmark indices represent a large chunk of the market in terms of size and financial performance. The index is a barometer of the performance of stock market and some may say the economy of the country.
There are various ways in which an index is constructed.
The most common are
All major global indices like MSCI, FTSE, S&P, Dow Jones use the free-float market cap methodology. Earlier Indian indices were developed using the full market capitalisation methodology but have shifted to the free-float market cap methodology.
Securities within the market index are assigned weights based on free-float where only non-promoter holding is used to calculate the market capitalisation.
The index is not only used to measure the performance and mood of the market but also to gauge the performance of stocks against the index and fund managers. Many mutual funds launch passively managed index funds that mimic the performance of the index.
Among the many uses of an index, one is to launch index based derivative products. Such products are very popular among traders and constitute substantial portion of the daily volume.
Over the years constituents of the index have changed, with companies that are performing better being included in the index while the laggards are removed from it. In the case of BSE, the Index Cell of the exchange does the day-to-day maintenance of the index. The cell is entrusted with the responsibility of maintaining and replacing the constituents of the index.
The index has some more filters for company selection like it should be from the universe of NIFTY 100 based on free-float market capitalisation and liquid companies and the constituent should have derivative contracts available on NSE.
The following tables give the composition of the two indices.
NIFTY | SENSEX |
ADANI PORTS & SEZ | ASIAN PAINTS |
ASIAN PAINTS | AXIS BANK |
AXIS BANK | BAJAJ FINANCE |
BAJAJ AUTO | BAJAJ FINSERV |
BAJAJ FINANCE | BHARTI AIRTEL |
BAJAJ FINSERV | DR. REDDYS LAB |
BHARTI AIRTEL | HCL TECHNOLOGIES |
BPCL | HDFC |
BRITANNIA | HDFC BANK |
CIPLA | HUL |
COAL INDIA | ICICI BANK |
DIVIS LABORATORIES | INDUSIND BANK |
DR. REDDYS LAB | INFOSYS |
EICHER MOTOR | ITC |
GRASIM | KOTAK MAHINDRA BANK |
HCL TECHNOLOGIES | L&T |
HDFC | M&M |
HDFC BANK | MARUTI SUZUKI |
HDFC LIFE INSURANCE | NESTLE |
HERO MOTOCORP | NTPC |
HINDALCO | POWER GRID |
HUL | RELIANCE IND. |
ICICI BANK | SBI |
INDUSIND BANK | SUN PHARMA |
INFOSYS | TATA STEEL |
IOC | TCS |
ITC | TECH MAHINDRA |
JSW STEEL | TITAN |
KOTAK MAHINDRA BANK | ULTRATECH CEMENT |
L&T | WIPRO |
M&M | |
MARUTI SUZUKI | |
NESTLE | |
NTPC | |
ONGC | |
POWER GRID | |
RELIANCE IND. | |
SBI | |
SBI LIFE INSURANCE | |
SHREE CEMENT | |
SUN PHARMA | |
TATA CONSUMER | |
TATA MOTORS | |
TATA STEEL | |
TCS | |
TECH MAHINDRA | |
TITAN | |
ULTRATECH CEMENT | |
UPL | |
WIPRO |
A market index measures the price performance of a group of assets in the market. The basket of stocks is selected by the stock exchange where they are traded. The top stocks selected from the top sectors in the country form part of the index. The indices represent a large chunk of the market in terms of size and financial performance. The index is a barometer of the performance of stock market and some may say the economy of the country.
Sensex is the benchmark index used by the BSE. It was constructed in 1986, and is the oldest one in India. Its constituents include top 30 stocks that are the most widely traded, largest and sector leaders. The index has a base year of 1978-79 and the base value of 100.
The benchmark index of NSE is called Nifty that is comprised of 50 companies and was incorporated in April 1996. The securities in Nifty are the market leaders in their respective sector. The index is reviewed every six months and non-performers are replaced with new leaders.
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