How SENSEX and NIFTY points are calculated? Why they change in real-time?

Summary

This video explains how Sensex and Nifty points are calculated in real-time, detailing their significance in tracking the stock market's overall performance. The video discusses the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), highlighting how the 30 companies in the Sensex and 50 companies in the Nifty represent market sentiment. Through calculations involving market capitalization and free float factors, it shows how these indexes provide an overall picture of the stock market's performance, making complex market data more understandable. The presenter emphasizes the importance of these indexes as key market indicators.

Takeaways

• 📈 The Sensex and Nifty are key indices in the Indian stock market, representing the performance of select companies.
• 🏦 Sensex represents 30 major companies from the Bombay Stock Exchange (BSE), while Nifty tracks 50 companies from the National Stock Exchange (NSE).
• 🛍️ These indices simplify market tracking by focusing on a small basket of companies instead of the entire exchange (5000+ companies in BSE and 2000+ in NSE).
• 💡 The purpose of Sensex and Nifty is to provide a general overview of market sentiment and performance, like a 'thermometer' for the stock market.
• ⚖️ The indices are calculated using the Free-Float Market Capitalization Method, which accounts for only the shares available for public trading.
• 💰 Market capitalization is calculated by multiplying the share price by the total number of shares of a company.
• 📊 Free float refers to the proportion of shares available for public trading, excluding shares held by promoters, government, or large institutions.
• 🧮 Nifty and Sensex index points fluctuate based on the performance and market value of the companies in their baskets.
• 🔍 The base year for Nifty’s calculation is 1995, and for Sensex, it's 1978-79, with index values calculated relative to these years.
• 📹 The video focuses on providing detailed calculations and formulas used to compute the index points for both Nifty and Sensex.

Q & A

What are Sensex and Nifty?

Sensex and Nifty are major stock market indices in India. Sensex represents a basket of 30 companies from the Bombay Stock Exchange (BSE), while Nifty represents 50 companies from the National Stock Exchange (NSE). These indices track the overall performance of the stock market.

Why were Sensex and Nifty created?

Sensex and Nifty were created to simplify the tracking of the stock market. Instead of following thousands of companies individually, investors can observe the performance of 30 companies in Sensex or 50 in Nifty, which represent the overall market sentiment.

How are the points for Sensex and Nifty calculated?

The points for Sensex and Nifty are calculated using the Free Float Market Capitalization method. This involves calculating the market capitalization of each company in the index, then multiplying it by the free float factor, and finally dividing by the base market capitalization.

What is market capitalization, and how is it calculated?

Market capitalization is the total market value of a company's shares. It is calculated by multiplying the current share price by the total number of outstanding shares.

What is the free float factor, and how does it affect the calculation?

The free float factor refers to the proportion of a company’s shares available for trading in the market. It is calculated by dividing the number of publicly available shares by the total number of shares. This factor ensures that only the tradable portion of shares is used in index calculations.

What is the significance of the base market capitalization in calculating index points?

The base market capitalization is the reference value used for index calculations, typically from a specific date. For Sensex, it's based on the market capitalization of the selected 30 companies from 1978-79, while for Nifty, it is based on the 1995 market capitalization of the 50 companies.

Why are only 30 companies included in Sensex and 50 in Nifty?

These specific numbers were chosen to represent a diversified sample of the largest and most actively traded companies in the stock market, giving a good overall picture of the market’s performance without needing to track thousands of companies.

What does the term 'index' signify in the stock market?

An index in the stock market is a statistical measure that represents the performance of a group of stocks. Indices like Sensex and Nifty give a snapshot of the market’s general direction and overall sentiment.

How does the change in a company’s share price affect the index points?

The share price of the companies in the index directly influences the index points. If the share prices of the companies in Sensex or Nifty rise, the index points increase, and if the prices fall, the points decrease, reflecting the market’s performance.

What is the base index value for Sensex and Nifty?

For Sensex, the base index value is 100, which was set during the 1978-79 period. For Nifty, the base index value is 1000, set on November 3, 1995.