What is the Meaning of Nifty and Sensex? Understand it to avoid losses in the stock market?

Meaning of Nifty and Sensex: You might hear that “today Nifty rose 2%”, “Sensex crash 3%”. You might daily see the price tags of nifty and Sensex in newspapers. You might see that price tape scrolling in business channels. Then the big question that comes to your mind “What is Nifty and Sensex?”.

First I will tell you the meaning of Nifty and Sensex in short. Nifty is an index of the top 50 companies on the National Stock Exchange(NSE). Sensex is an index of the top 30 companies on the Bombay Stock Exchange(BSE). Those top companies are calculated based on free-float market capitalization.

In this article, we are going to discuss “What is free-float market capitalization?”, “What is nifty and Sensex”, “What is Index?”, “What is BSE and NSE?”, “How the price of Nifty and Sensex is calculated?”, “What is the difference between Nifty and Sensex?”.

Both BSE and NSE are situated in Mumbai. Now without wasting our time we are going to our main topic “What is Nifty and Sensex“.

If you are new to the stock market then you can learn investing step by step here.

Meaning of Nifty and Sensex

Before understanding Nifty and Sensex we will see what is Index, BSE, and NSE parallelly. There are more than two stock exchanges in India but the National stock exchange and the Bombay Stock Exchange are more popular.

What is an Index?

First, we will see what is Index? If you are new to the stock market or an experienced investor or trader then you know that it is very important to track the Stock Index. There are more than 5000 stocks available on BSE. It is very difficult to track that all stock in a short period of time.

That’s why the concept of Index has come into consideration. Simply Index is the group of companies. Those companies are chosen by free-float market capitalization.

What is free-float market capitalization? There are some stocks owned by promoters and some government bodies. Those stocks are not taking part in trading in the market. That’s why those stocks are ignored at the time of calculation of market capitalization. The remaining stocks are getting calculated and that volume is called free-float market capitalization.

Those Indices are important to track daily changes in the stock market. You can get some idea of economy of that country. What major decision was taken in the nation can affect that Indices.

What is Sensex?

Now you know what is Index. Let’s move toward some famous Indices in India. That will give you a clear idea about “What is Nifty and Sensex?”.

Bombay Stock Exchange (BSE)

  • It is an Indian Stock exchange situated on Dalal Street, Mumbai, Maharashtra.
  • Founded in 1875. That’s why the oldest stock exchange in Asia.
  • More than $2.8 trillion in market capitalization. In that way 7th largest stock exchange in the world as of Feb 2021.
  • More than 5000 companies are listed publically on the Bombay Stock Exchange.

Sensex

The long-form of Sensex is the “Stock Exchange Sensitive Index”. Also known as BSE 30. Sensex is the group of top 30 companies on the Bombay Stock Exchange.

  • Those top companies are selected as per top free-float market capitalization. Those companies are fundamentally strong.
  • Those companies are selected from various sectors.
  • When Sensex established the base value was 100. First, live on 1978-79.
  • In the past Sensex was calculated based on weighted market capitalization methodology.
  • From 1 September 2003, it calculated on basics of Free Float Market Capitalization methodology.

Sensex companies list

Company NameIndustry
Asian PaintsPaints
Axis BankBanking 
Bajaj AutoAutomobile
Bajaj FinanceFinance (NBFC)
Bajaj FinservFinance (Investment)
Bharti AirtelTelecommunications
Dr Reddy’s LaboratoriesPharmaceuticals
HCL TechnologiesIT Services & Consulting
HDFCFinance (Housing)
HDFC BankBanking – Private
Hindustan Unilever LimitedFMCG
ICICI BankBanking – Private
IndusInd BankBanking – Private
InfosysIT Services & Consulting
ITC LimitedCigarettes & FMCG
Kotak Mahindra BankBanking – Private
Larsen & ToubroEngineering & Construction
Mahindra & MahindraAutomobile
Maruti SuzukiAutomobile
Nestlé IndiaFMCG
NTPCPower generation/Distribution
Oil and Natural Gas CorporationOil exploration and Production
Power Grid Corporation of IndiaPower generation/Distribution
Reliance Industries LimitedConglomerate
State Bank of IndiaBanking – Public
Sun PharmaPharmaceuticals
Tata Consultancy ServicesIT Services & Consulting
Tech MahindraIT Services & Consulting
Titan CompanyDiamond & Jewellery
UltraTech CementCement

What is Nifty?

National Stock Exchange (NSE)

  • NSE is the leading stock exchange owned by the government of India. Established in 1992.
  • National Stock Exchange was the first dematerialized electronic exchange in India.
  • It was the first technically advanced exchange in the country.
  • NSE is the world’s largest derivatives exchange.
  • More than 1300 Companies are listed in NSE.

Nifty

The long-form of Nifty is the “National Stock Exchange Fifty”. Also known as NIFTY 50. Nifty is the group of top 50 companies on the National Stock Exchange.

  • Those top companies are selected as per top free-float market capitalization. Those companies are fundamentally strong.
  • Those companies are selected from various 24 sectors.
  • When NSE was established the base value was 1000. First, the Nifty index was launch on 22 April 1996.
  • In the past Sensex was calculated based on weighted market capitalization methodology.
  • From 26 June 2009, it calculated on basics of Free Float Market Capitalization methodology.

Nifty companies list

Company NameIndustry
Adani Ports and Special Economic Zone Ltd.SERVICES
Asian Paints Ltd.CONSUMER GOODS
Axis Bank Ltd.FINANCIAL SERVICES
Bajaj Auto Ltd.AUTOMOBILE
Bajaj Finance Ltd.FINANCIAL SERVICES
Bajaj Finserv Ltd.FINANCIAL SERVICES
Bharat Petroleum Corporation Ltd.OIL & GAS
Bharti Airtel Ltd.TELECOM
Britannia Industries Ltd.CONSUMER GOODS
Cipla Ltd.PHARMA
Coal India Ltd.METALS
Divi’s Laboratories Ltd.PHARMA
Dr. Reddy’s Laboratories Ltd.PHARMA
Eicher Motors Ltd.AUTOMOBILE
Grasim Industries Ltd.CEMENT & CEMENT PRODUCTS
HCL Technologies Ltd.IT
HDFC Bank Ltd.FINANCIAL SERVICES
HDFC Life Insurance Company Ltd.FINANCIAL SERVICES
Hero MotoCorp Ltd.AUTOMOBILE
Hindalco Industries Ltd.METALS
Hindustan Unilever Ltd.CONSUMER GOODS
Housing Development Finance Corporation Ltd.FINANCIAL SERVICES
ICICI Bank Ltd.FINANCIAL SERVICES
ITC Ltd.CONSUMER GOODS
Indian Oil Corporation Ltd.OIL & GAS
IndusInd Bank Ltd.FINANCIAL SERVICES
Infosys Ltd.IT
JSW Steel Ltd.METALS
Kotak Mahindra Bank Ltd.FINANCIAL SERVICES
Larsen & Toubro Ltd.CONSTRUCTION
Mahindra & Mahindra Ltd.AUTOMOBILE
Maruti Suzuki India Ltd.AUTOMOBILE
NTPC Ltd.POWER
Nestle India Ltd.CONSUMER GOODS
Oil & Natural Gas Corporation Ltd.OIL & GAS
Power Grid Corporation of India Ltd.POWER
Reliance Industries Ltd.OIL & GAS
SBI Life Insurance Company Ltd.FINANCIAL SERVICES
Shree Cement Ltd.CEMENT & CEMENT PRODUCTS
State Bank of IndiaFINANCIAL SERVICES
Sun Pharmaceutical Industries Ltd.PHARMA
Tata Consultancy Services Ltd.IT
Tata Consumer Products Ltd.CONSUMER GOODS
Tata Motors Ltd.AUTOMOBILE
Tata Steel Ltd.METALS
Tech Mahindra Ltd.IT
Titan Company Ltd.CONSUMER GOODS
UPL Ltd.FERTILISERS & PESTICIDES
UltraTech Cement Ltd.CEMENT & CEMENT PRODUCTS
Wipro Ltd.IT

How to calculate Index Price?

How to calculate Sensex?

The method to calculate Sensex and Nifty is mostly the same. Both are calculated as per free-float market capitalization. That’s why we see mostly the same fluctuation on both indices.

The process to calculate Sensex Index price
1. First you need to calculate Market capitalization. Market capitalization is calculated simply by multiplying the current share price to outstanding shares.

Market capitalization= Current share price × Outstanding shares.

2. Then you have to calculate free-float market capitalization.

Free-float market capitalization = Market capitalization × Free float factor

3. Now lastly you have to calculate Sensex. The free-float market capitalization of that 30 companies divided by base value i.e 100.

Sensex Index value = Free-float market Capaitalization /Index devisor(Ii.e 100)

How to calculate Nifty?

The process of calculating Nifty is similar to Sensex.

The process to calculate Nifty Index price

1. First you need to calculate Market capitalization. Market capitalization is calculated simply by multiplying the current share price to outstanding shares.

Market capitalization= Current share price × Outstanding shares.

2. Then you have to calculate free-float market capitalization.

Free-float market capitalization = Market capitalization × Free float factor

3. Lastly Nifty index price calculated by dividing the current market value by base market value and multiplication to the base value(i.e 1000)

Nifty Index Price = (current market value/ Base market value) × 1000

Difference between Nifty and Sensex

Factor SensexNifty
Long formSensitive IndexNational Fifty
OperatorsIndia Index Services Products Ltd (IISL)Bombay Stock Exchange
Listed Companies3050
Base Number1001000
Total Number of Sector covered Covered a total of 13 sectorsCovered a total of 24 sectors

Why it is Important to track Nifty and Sensex?

  • We can take a general idea about the stock market. whether the market will up or down.
  • You can compare your portfolio performance with indices. And you can improve your investment strategies.
  • Index funds are created based on those Indices.
  • Those indices can be a good benchmark to compare with other assets like gold, FD, real estate, and others.

FAQ on What is Nifty and Sensex

Can I track the overall market condition by tracking Sensex and Nifty?

Partially, Above we discuss that the Indices are the small group of companies. Sample of the overall market. If that Index falls that’s no meant that all companies are down.
We can take a small idea of the overall market. We can not completely depend on them.

Where the BSE and NSE located?

Both the Bombay Stock Exchange (BSE) and National Stock Exchange(NSE) are located in Mumbai, Maharashtra.

That’s for now, I hope you understand the meaning of Nifty and Sensex. If you like this article and find it helpful then don’t forget to share it with your friends. Thank You!

Happy Investing!

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Yadav Patle
Hello, I am Yadav Patle. Civil Engineer by education. Stock market investor. I can guide you to start investing in a very simple language. Want to know more click here.

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