By Ravi Gopalakrishnan, Head-Equity, Canara Robeco AMC
<p>Sensex and Nifty consist of actively traded largecap companies, which are representative of their respective sectors.</p>
By Ravi Gopalakrishnan, Head-Equity, Canara Robeco AMC
Stock market performance is generally gauged by looking at its bellwether index. An index is the aggregate relative value of stocks that are representative of the whole market or any specific sector.
There are many stock exchanges in India, but most of the trading takes place on two major stock exchanges—the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been in existence since 1875 and is represented by its benchmark index S&P BSE Sensex. Sensex is a composite of 30 stocks representing a sample of large and liquid companies spread across various sectors. The NSE came into existence in 1992 and its benchmark index is CNX Nifty. Nifty includes 50 stocks accounting for 23 sectors of the economy. The sector weights can be viewed on the NSE and BSE websites.
Sensex and Nifty consist of actively traded largecap companies, which are representative of their respective sectors. The impact of any positive or negative sector news will get reflected in the corresponding company prices. Further, as these companies are major players in the economy, any market movement driven by macroeconomic fundamentals gets captured by these stocks, which, in turn, gets reflected in the indices. Also, growth of the Indian equity market can be observed by looking at the historical trends of Sensex.
Thus, both Sensex and Nifty serve as lead indicators of economic activity.