A stock market or share market consists of buyers and sellers who trade in shares of publicly listed companies. A publicly listed company is a company that has issued its shares through an IPO and trades its stocks on at-least one stock exchange.
So, Initial Public Offering (IPO) is the process when a privately owned company becomes a publicly-traded company by offering its shares to the general public for trading in the share market for the first time.
Simply put, the stock market or share market is a place where regular activities of buying, selling, and issuance of shares of publicly-held companies takes place.
Since there are thousands of company listed on a stock exchange, hence it’s really hard to track every single company’s stock to evaluate the market performance at a time. Therefore, a smaller sample is taken. This small sample is called Index. This index is computed from the prices of selected stocks.
In India, Sensex and Nifty are stock market indices which represent Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) respectively.
Sensex is the market index consisting of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE).
Let us understand this with the help of an example. Consider there is a school and the students are studying in the X standard. These students have been divided into different divisions based on their IX standard results. Those students who have scored around 85% to 100% (today’s students even score 100%) were placed in the A division, those who scored around 60% to 85% were placed in the B division and those students who scored around 40% to 60% have been placed in the C division.
So, this year’s X standard’s exams were conducted and the results were out. Those students who used to score around 85% on an average; this time scored 60%, which means this year’s exams were quite tough. Similarly, the results of B, C, and D divisions saw an overall decline in their scores. Thus, it means we can predict the pattern of scores of the entire X standard by just observing the scores of the A division students.
Can we apply the same logic to share market as well? Yes absolutely. Bombay Stock Exchange consists of around 6000 companies which are listed; out of which only ‘top 30’ companies from different sectors form the BSE index known as Sensex.
There are various banks listed amongst which SBI is a leading bank, then there are various oil and gas companies out of which Reliance is a leader, similarly, there are various IT companies listed amongst which Infosys, as well as TCS, are the leading IT companies.
Thus, the combination of such top 30 companies from different sectors listed on the Bombay Stock Exchange together is known as Sensex. Similarly, Nifty consists of close to 1600 companies but out of which only ‘top 50’ companies from different sectors forms the NSE index. In simple terms, Sensex and Nifty together form the A division of the share market.
So if Sensex goes up, it means that the share price of most of the major companies went up during the given period. If the Sensex goes down, this tells you that the share price of most of the major companies on the BSE has gone down.
For example, suppose the Sensex is at 26,000 today. If Sensex drops to 24,950 tomorrow, it means that the majority of the 30 companies’ financial condition is not good i.e. their share price is falling.
Let us understand the concept of Nifty now. Nifty is the market index consisting of 50 well-established and financially sound companies listed on National Stock Exchange (NSE). Nifty consists of close to 1600 companies but out of which only ‘top 50’ companies from different sectors form the NSE index.
So, if Nifty goes up, this means that the stock price of most of the major stocks on NSE has increased. On the other hand, if Nifty goes down, it means that the stock price of most of the major stocks on NSE has gone down.
Thus, Sensex and Nifty are both indicators of market movement. If the Sensex or Nifty goes up, it means that most of the stocks in India went up during the given period.
So, if you wish to become a successful trader in the share market, you need to stay updated about the latest trends and valuation of Sensex and Nifty.
Happy Trading, Happy Investing!!!
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