We constantly come across in the news that Sensex has soared. Or the market has fallen, causing fear in the mind of investors. Sensex shot up by 500 points. But what exactly do Nifty and Sensex mean? In this article, we have covered what Sensex and Nifty is. How Sensex and Nifty are calculated?
What are Sensex and Nifty?
Sensitive Index commonly known as Sensex is the benchmark index of Bombay Stock Exchange (BSE). It was introduced by BSE on January 1 1986. It is one of the two major market indexes in India, the other one is NIFTY. Sensex comprises 30 of the largest and most actively-traded stocks on the BSE, providing an accurate gauge of India’s economy. The index’s composition is reviewed twice a year (in June and December).
National Stock Exchange Fifty popularly known as NIFTY. The NIFTY 50 is a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange. The Nifty 50 index was launched on 22 April 1996. The NIFTY 50 index is a free float market capitalisation weighted index. The NIFTY 50 index covers 14 sectors of the Indian Economy.
How is Sensex Calculated?
The Sensex is calculated using the Free-float Market Capitalization method. In this method, the index reflects the free-float market value of the 30 constituent stocks relative to a base period.
The first step is to determine the free float market capitalization of 30 companies that form the index.
Free Float Market Capitalisation= Market Capitalisation * Free Float Factor
Free Float factor is the percentage of total shares of a company issues and that are readily available to the common public to trade. Additionally, the shares issued to the promoters, the government, etc. that are not available for trading on the market are not included. The market capitalization is the market value of the company.
Market Capitalisation = Share price per share* No of shares issued by the Company
Value of Sensex = (Total Free Float Market Capitalization / Base Market Capitalization)*Base Period Index Value
The base period (year) for Sensex calculation is 1978-79. The base value index is 100. Using the above formula, one can calculate the value of BSE Sensex.
How is Nifty Calculated?
Nifty 50 is calculated by taking the weighted value of the 50 stocks listed on NSE and is based on free float market capitalization. The index value is calculated using market capitalisation and reflects the value of the stocks relative to the base period. The market value is calculated as the product of several shares and the market price per share.
Index value = Current market value / (Base Market Capital * Base Index Value)
As the value of Nifty is based on weighted cost, the companies with more massive stocks affect the value more than the companies with smaller capital.
The base year is taken as 1995 and the base value is set to 1000. The base market capital is Rs. 2.06 trillion.