Two major stock exchanges in India are the ‘Bombay stock exchange’ and the ‘National stock exchange’.
Bombay Stock Exchange (BSE)
- Bombay stock exchange is an Indian stock exchange located at Dalal street, Mumbai, Maharashtra.
- It was established in 1875 and is Asia’s oldest stock exchange.
- It is the world’s fastest stock exchange, with a median trade speed of 6 microseconds.
- The BSE is the world’s 11th largest stock exchange with an overall market capitalization of $1.43 Trillion as of March, 2016.
- More than 5500 companies are publicly listed on the BSE.
SENSEX:
Sensex, also called as BSE 30, is the market index consisting of 30 well-established and financially sound companies listed on Bombay Stock Exchange (BSE).
- 30 companies are selected on the basis of the free float market capitalization.
- These are different companies from the different sectors representing a sample of large, liquid and representative companies.
- The base year of Sensex is 1978-79 and the base value is 100.
- If Sensex go up, it means that most of the stocks in India went up during the given period. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down.
For example, suppose the Sensex is 26,000 today. If Sensex drops to 25,950 tomorrow, it means that the majority of the 30 companies financial condition is not good i.e. their share price is falling.
National Stock Exchange (NSE):
The National Stock Exchange (NSE) is the leading stock exchange of India, located in Mumbai, Maharashtra, India.
- NSE was established in 1992 as the first demutualized electronic exchange in the country.
- It was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system which offered easy trading facility to the investors spread across the length and breadth of the country.
- NSE’s index, the NIFTY 50, is used extensively by investors in India and around the world as a barometer of the Indian capital markets.
NIFTY:
NIFTY 50 is the National Stock Exchange of India’s benchmark stock market index for Indian equity market. Nifty is owned and managed by India Index Services and Products (IISL).
- The base year is taken as 1995 and the base value is set to 1000.
- Nifty is calculated on 50 stocks actively traded in the NSE
- 50 top stocks are selected from 24 sectors.
NOTE: The Sensex and Nifty are both indicators of market movement. If the Sensex or Nifty go up, it means that most of the stocks in India went up during the given period.
When Sensex/Nifty increases, it shows economic growth of the country. For example, during the Indian recession of 2008-09 the Sensex fall over 12000 points (-60%).
The fall in the Sensex was analogous with the recession. Meaning, people were selling their shares and an economic crisis in the country.
Importance of Market Index:
- The market indexes are the barometer for the market behaviour. It gives a general idea about whether most of the stocks has 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.
- They are used in passive fund management by Index funds.