A stock market is a virtual place where you can sell or buy shares of companies. And an index is basically an indicator which gives us a general idea about stocks going up or down.
The Sensex, also called the BSE 30, is a stock market index of 30 well established and financially sound companies that are listed on the Bombay Stock Exchange (BSE). Similarly, Nifty is an indicator of all the major companies listed on NSE (National Stock Exchange) which is also situated at Mumbai. BSE and NSE are two major stock exchanges in our country. Most of the stock trading in our country is done through the BSE & NSE.
As we have learned that the Sensex and Nifty are "indices of a stock market". They are an indicator of market movement. If the Sensex goes up, then it means that most of the stocks in India went up during the given period. If the Sensex goes down, then it means that the stock price of most of the significant shares has gone down. Of course, there are many other indices other than these two. The base year of Sensex is 1978-79, and the base value is considered 100.
How are the Sensex and Nifty calculated?
Sensex is designed and based on globally accepted construction and review methodology. Sensex is calculated, taking into consideration the stock prices of 30 different companies listed on BSE. Its value is calculated using the "free-float market capitalization" method. This method is one of the best ways of calculating a stock market index. BSE also calculates a dollar-linked version of Sensex. The base year of Sensex is 1978-79, and the base value is 100. The 30 companies which are taken into consideration are changed from time to time. This change is done to make the Sensex an accurate index.
Which 30 Companies?
The 30 companies that are used to find out the Sensex value are selected and reviewed by an "index committee". These are different companies from different sectors representing a sample of large, liquid and representative companies. The 30 companies are changed in a timely manner. The BSE index committee decides on which stock to include in the Sensex and which stock should be removed from the Sensex. This "index committee" is made up of academicians, mutual fund managers, finance journalists, independent governing board members and other participants in the financial markets.