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NIFTY
The NSE S&P CNX Nifty 50 or the NIFTY as it is commonly known is the prime index of the National Stock exchange. The NIFTY index is made up of 50 different stocks from all the listed company at the National stock exchange. The national stock exchange is the largest stock exchange in India in terms of trading volume and daily turnover. The 50 stocks that made up the NIFTY index are the prime stocks in terms of market capitalization and daily trading activity. NIFTY is one of the two most significant stock indexes in India and the other one is the SENSEX.
The NIFTY index at present is owned and managed by the India Index Services and Products Ltd. (IISL). The India Index Services and Products Ltd. (IISL) is joint venture between the national stock exchange and the CRISIL. CRISIL is the first Indian company to specialize for index management. The company has a license agreement with the Standard & Poor's (S&P), which is the leading company in the world in Index management. The NIFTY index is used for purposes like benchmarking fund portfolios, index based derivative trading and managing index funds.
The 50 stocks that are part of the NIFTY index are reviewed and modified from time to time on the basis of the present market condition and the position of respective companies. On the basis of these factors and the present market capitalization of the companies prime companies from different sectors are selected for the NIFTY index. At present the 50 companies in the NIFTY index represent as much as 21 different sectors. So it can be said that NIFTY index has a good mix of different sectors and reflects the overall market condition rightly. Moreover, with stocks from different sectors in the index it makes the NIFTY more stable that is not greatly influenced by the fall in certain sector.
The stocks that make the NIFTY index represent the prime companies in India and they are leaders in the stock exchange in terms of the trading volume and the market capitalization. In fact the 50 stocks those make the NIFTY index accounts for 50 of the total trading volume in NSE. Moreover these 50 stocks represent the 58.64% of total market capitalization as on 31st March, 2008. The NIFTY index has huge impact on the daily trading at the NSE. It is calculated that the NIFTY index has an impact cost of about 0.15% on portfolio of Rs. 2 crores.
NSE being the leading stock exchange in India, the NIFTY index is not only a prime index for the exchange itself but also it is an indicator of the booming Indian economy. Despite of the recent slowdown in the global economic scene the NIFTY index has sustained a regular growth after overcoming the sudden impact. The index fro so many reasons have attracted investors not only from the domestic market but also from foreign countries.
You can invest in the NIFTY index in two different ways. You can either directly invest in the NIFTY index through the derivative instrument or you can also invest in the index indirectly through the various index funds that are operated by different companies. For derivative trading you can buy the future or option derivative contracts of the NIFTY lot that comprises 50 units. The NIFTY mini can be bought as well that consists of 20 units of NIFTY. The derivative trading of NIFTY give you chance to invest in the prime index of India directly and benefit from it at a nominal brokerage. This is the most popular form of investment in the NIFTY index that is preferred by most of the investors. The index funds that invest in the NIFTY index is best investment solution for you if you are interested to invest in the index but reluctant to risk of investing in the index directly. Whatever way you invest the NIFTY index is a great investment proposition for you.
Sensex
Bombay stock exchange or BSE is the largest stock exchange in India in terms of number of listed companies in the exchange and the market capitalization of the listed companies. The prime index of the Bombay Stock Exchange is the BSE 30 that is popularly known as the Sensex. The Sensex is made with highly liquid stocks of 30 largest companies in terms of market capitalization. The Sensex was first constructed in the 1986 on 1st of January with just 30 stocks. Over the years of course these stocks have changed time and again according to the condition of the market and economy of the country. The selection of the stocks is made on the basis of market capitalization and liquidity of stocks. The BSE index committee decides on which stock to include in the Sensex and which stock should be removed from the Sensex. This committee is made up of highly placed experts and professionals from the field finance and industry who are well aware of the Indian stock market scenario.
When selecting the stocks for constructing the Sensex there are so many factors that are considered to ensure that the Sensex portrays the condition of the market and the overall economic scenario of the country. But in the process it is also ensured that the Sensex is not completely depend on a few companies or the sectors. The first thing that is important while selecting the stocks for including them in the Sensex is of course the market capital of the companies. For this purpose only the reputed and well known large enterprises are considered. The companies that are included in Sensex have huge market capitalization. In Sensex there are companies like ACC, Reliance, and Wipro that are leaders in their respective sectors. By including these prestigious companies it is ensured that the Sensex catches the exact pulse of the industry.
Another important factor that is also considered while selecting the stocks is the diversification of the industries. While selecting the stocks for making the Sensex it was carefully observed that the Sensex has a balanced representation from all the major sectors. This is a common practice for making the stock indices all over the world to reduce the stock noise. That is why companies from different sectors are included in the Sensex so that debacle in one particular sector can not affect the Sensex to a great extent. Selection of the stocks in this way certainly minimizes the risks of the investors who invest in the Sensex. In the BSE 30 you will find the presence of the leading companies from different sectors including FMCG, technology, banking, finance, manufacturing, pharmaceuticals, oil and IT.
The Sensex is managed and operated by a panel of experts. The valuation of the Sensex is calculated on the basis of the Free Floating Capitalization Method that is the best effective way to calculate the value of the stock index. This method is variation of the widely followed capitalization method. In this method the value of the stocks that are available for trading is considered instead of considering the value of the total outstanding method. As the calculation is done on the number of stocks that are available for trading the process gives more accurate valuation of the index.
There is no doubt about the fact that BSE 30 or the Sensex is premiere stock index in India. It is a profitable proposition to invest in the Sensex. There are mainly two ways in which you can invest in the Sensex. You can either trade in the index directly through derivative trading or you can invest in the Sensex with the index funds that deal in the Sensex. In whatever way you do it you can expect to get a good return from the Sensex over a period of time as the Sensex represent the biggest and most prestigious companies in India which one of the biggest emerging economy in the World.
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