In this post, we will discuss more on indices. Sensex and Nifty 50 are Indian stock market indices and are also used to study the trend of the investor sentiments.
Let us take an example of different types of markets like wholesale market and consumer market. They also have indices like consumer inflation index, wholesale inflation index. Economists use these indices to analyse and plan different policies. Our government periodically monitors the inflation rate and changes monetary policy accordingly.
Today we will see what is Sensex or Nifty50?.
Sensex is the index managed by BSE which contains top 30 companies by market capitalization whereas Nifty50 is the index managed by NSE which contains top 50 companies by market capitalization. BSE and NSE periodically review the list of companies in the index and make changes accordingly.
Now the question arises what conclusions could be drawn based on these indices. As I told, an index gives a broader picture of a trend in the stock market. If an index is going up, then we can note the following observations:
- Investors are optimistic about the growth of the companies.
- There is more demand in the market and investors are investing more and more money in the stock market.
- As investors are optimistic about the companies, it directly shows they are optimistic about the country’s growth and its GDP.
Let us understand what is happening when an index is going down
- Investors are pessimistic about the growth of companies.
- Investors are pulling out money from the market, therefore, creating more supply and less demand in the markets.
- Generally, the growth of companies is not affected by the decline in the index. But on a long run like 1-2 years, it can impact their businesses also.
I hope, now you will have a good picture of Sensex 30 and Nifty 50.
Read: Why stock markets exist?
The same principle could be applied when an index is going down.
I hope now it will give you good picture what Sensex and Nifty stand for. We will take more such small concepts on our journey to improve financial literacy.
Thanks for reading.