Understand Sensex & Nifty in simple terms!!!

My father would say it is something called the share market. Even he has limited exposure & knowledge about this fascinating world of investment. However even today the picture has not changed much. Still, if you say share market people will look at you as if you have said a forbidden word. So why is it?

This is somewhat ignorance, lack of awareness & yes the comfort of the traditional path of saving & investment which prohibits us to explore the opportunities in the risky stock market!!! As they say.

The stock market is an integral part of an economy as it represents the state of a particular economy. Stock or share market is where people buy and sell the shares of companies. It is a very simple way to understand.

Let us understand a few terms & terminology:

Shares: Shares is a unit in the capital of the company which signifies the ownership in the company. E.g. Reliance, SBI &

  • Tata Motors shares.
  • Trading: The process of buying & selling the shares is known as trading. The purpose is to gain profit from the dealings.
  • Shareholder: If you purchase a share of the company you become the owner of the value in the company and become a shareholder.
  • Exchange: The platform which facilitates the buying and selling by providing necessary infrastructure & instruments. for e.g National stock exchange ( NSE) & Bombay stock exchange(BSE)
  • Indices: It is the representation of the top-performing companies from every sector. E.g. Nifty & Sensex.
  • Bull & Bear: Bulls represents the strength in the share market & it is represented by green color in general whereas Bear represents the weakness & red color is used to depict the fall in prices.

Now let us understand it in detail:

Economy growth is based on its business environment and the company’s growth & profitability which operate under this business system. There are various sectors like Banking, Pharma, Oil & gas, FMCG, Metals & Automobiles, etc. There are 5000 companies listed in BSE & 1700 in NSE. So it is practically impossible to track all the companies daily. Thus to simplify the whole concept the top-performing companies in each sector are picked up based on their performance & market capitalization. The NSE index is known as Nifty 50 as it consists of 50 top major companies & the BSE index is called Sensex which consists of 30 top-performing companies.

Index is the representation of the stock market e.g. If someone says today market went down 200 points then it should be understood as the Sensex index went down 200 points or the share prices fell lower from the previous day. As it signifies that the bears were heavy or selling pressure was heavy in the market.

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