If you have arrived at this post you must have heard about
this term NSE and BSE. You might not know much about it much but you surely know
that it is related to stock markets. Now, What is a stock market, and what is
NSE, BSE, SENSEX, and NFITY, all of your questions will be answered here in
this post. So keep reading.
Before that, what is a stock? A company’s capital is divided
into shares which means ownership. When you buy a stock, you are buying the unit
of ownership of the company through shares. Now, why would one buy a share of
some company? For-profit, right!!! You buy a share of a company with a view
that its value is going to rise with time and you are going to sell off and
book profit at a higher price. This view is also called Bullish View.
Similarly, a seller would sell his stocks if he has already
purchased the stock at a lower price or expects that that the price of the
share will come down with time. This view is also called as Bearish View. Now
Buyers and sellers connect to the exchanges through their brokers and make a trade.
You must have heard the names of some of the brokers like Zerodha, Sharekhan,
etc.
BSE and NSE
BSE stands for Bombay Stock Exchange and it is the oldest
stock exchange in Asia. A stock exchange is a marketplace where different
stocks are listed and are sold and bought by traders. Any stock you buy has to
be listed in an exchange, BSE or NSE. BSE has
more than 5000 stocks listed in it.
NSE stands for National Stock Exchnge. This exchange was
founded in the year 1992. With time, it has become India's biggest stock
exchange concerning market capitalization. NSE has more than 1600 stocks listed
in it. A stock may be listed in either of the BSE or NSE or both exchanges.
Sensex and Nifty
SENSEX is a benchmark index of BSE and was introduced in
1986. It depicts the weighted average value of the top 30 companies listed in
the stock exchange. It follows the trend of the companies listed in BSE under
SENSEX. If the stock of these 30 companies will rise, the index will also rise
and if they fall, the index will also fall. However, it is the weighted average
movement of the stocks and each stock is weighted differently depending on its
market capitalization.
NIFTY is the benchmark Index of NSE. NIFTY derives its value
from the top 50 companies which are the biggest in terms of market
capitalization. It has derived its name from NSE and Fifty, combining both
become NIFTY. Similar to the SENSEX, its
movement also depends on the movement of 50 stocks listed in NIFTY.
Now, keep in mind the stocks under these indexes can change
with time. Any Stock may enter NIFTY which is performing as per the top 50 stock
criteria of NIFTY and another stock may get out of it which loses its spot in the
top 50. The same is the case with SENSEX.
This brings us to the fact that NIFTY and SENSEX have grown
so much with time while some of the largest companies have fallen. While these
two are well-known indexes, they are not the only ones, there are various other
indexes that derive their value from a different set of stocks e.g. BANKNIFTY,
S&P BSE Midcap, etc.
Key Takeaways:
Both the NSE and BSE are among the top exchanges of the
world and are supported by a large number of listed stocks. That is why the
volume of trades in these exchanges is also huge. Sensex and Nifty are the two
largest Benchmark indexes and heavily traded ones.
You can continue learning more about stock markets and how
to make money through them in our further posts.
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