Hi guys! Welcome to investing guru blog series for beginners. Today we are going to discuss the fundamentals of the Indian stock market. If you are new to investing then I will suggest you first go through my previous blog “Investing guide – for beginners” where we have covered the importance of investing, the role of education in investing, and many more basic questions which a know-nothing investor has in his/her mind.
Let’s start with a question.
What are the two basic stock exchanges in India?
Note down your answers and check below if you answered it right!
The two basic stock exchanges in India are :
BSE is one of the oldest stock exchanges in Asia and first in India which started in 1875. It is the first as well as the largest stock exchange in India as on date. There are about 5000 companies listed in BSE. “Sensex” is the most popular and well-known index of the BSE.
NSE is relatively new as compared to BSE and started in the year 1992. There are about 1600 companies listed in NSE. Nifty is the most popular index of NSE.
What is the difference between BSE and NSE?
BSE and NSE both are stock exchanges where companies list their stocks. Most of the stocks which are listed in BSE are listed in NSE also. They are like two different shops that sell the same items i.e. stocks. In terms of buying and selling stocks, it doesn’t matter if you are buying from BSE or NSE. The price of the same stock remains same in both the stock exchanges.
Now if you are a beginner then you must be thinking if there are other indices also apart from Sensex and Nifty. The answer is “Yes”. There are many other indices apart from Sensex (in BSE) and Nifty (in NSE).
Then why we get to hear about Sensex and Nifty more often?
Let’s first understand what Sensex and Nifty are in financial terms before answering the above question.
What is the difference between Sensex and Nifty?
Sensex is a basket of top 30 stocks listed in BSE while Nifty is a basket of top 50 stocks listed in NSE based on Market capitalization.
Market Capitalization is the total share value of the stocks of a company, as explained in the below formula.
Market Capitalization = No. of shares × Market value of one share
As on date Reliance Industries is ranked no. 1 based on market capitalization. But these rankings keep changing based on the rise or fall of the stock prices of the different companies.
The market capitalization of the remaining stocks in the Indian stock market is negligible if compared to the top 30 companies (in BSE) and the top 50 companies(in NSE). Therefore, Sensex and Nifty are used as a benchmark for BSE and NSE respectively. In general terms, we can say that they are the reflection of our economy as well. That’s why we get to hear about Nifty and Sensex more often.
What are the other indices of BSE and NSE?
Why other indices can’t be considered as a true reflection of the economy?
Stay tuned for our next post for the answers to the above questions as we go deeper into the investing. For now, that’s all from me!
Please drop your queries/feedback below.
See you again!