In India have two major stock markets. NSE [national stock exchange] and BSE [formerly Bombay stock exchange]. Both are located in Mumbai. Below are the topic’s we are going to cover in this blog
- What is the difference between NSE and BSE?
- What is Index || Sensex || Nifty50?
- How Index works in stock market
- What is Nifty50 and Sensex?
- How we can use the indexes
- What Sectoral Index?
What is the difference between NSE and BSE?
BSE is the first stock market exchange established in 1875 and it’s the largest stock market in Asia. NSE is the leading stock exchange in India established in 1992. NSE implemented the first de materialized electronic exchange trading in India.
NSE and BSE is a place where an investor can buy or sell shares of public listed companies. In NSE around 2000 companies are registered and in BSE around 5000 companies are registered.
What is Index || Sensex || Nifty50?
When we start hearing about stock market, we are familiar with two words, one is Sensex and another one is Nifty50. We used to hear that Sensex up by 1000 points and nifty up by 50 points like that , what is that meant by?. Both nifty50 and Sensex considered as indexes for NSE and BSE.
What is index?
Index in stock market considered as an indicator from which an investor can analyze whether the market is performing well or not. Stock market reflects the economy of a country.
How Index works in stock market
In NSE stock market more than 2000 companies are present and in BSE more than 5000 companies are present.
If an investor analyze the performance of a majority company’s in NSE or BSE, investor can understand how the market performing well or not.
The index is calculating by tracking of previous selected companies (in NSE its top 50 and In BSE its top 30) and on basis of pre-defined WA (weighted average) criteria, example. Weighted price and weighted market capitalization etc.
By using these calculations they will come up with one value, that’s called Index.
When an investor analyze the index value, it’s give an idea about how the market is performing whether it’s going up or its going down.
What is Nifty50 and Sensex?
Nifty50 is an index for NSE and for BSE its Sensex. In Nifty index having 50 top companies from that they are come up with index value for NSE.
Sensex is calculating using the top 30 companies from BSE. By looking into the index values of NSE and Sensex we can identify the market movement whether it’s in upward direction or downward direction.
Below you can see a Sensex graph for last one year
How we we can use the indexes
Market indexes help an investor to understand the performance of economy. The indexes will be used for bench marking the investment portfolios.
Bench marking for the risk of a return help an investor to analyze whether his investment portfolio returned a good return or not. Suppose an investor invested in some shares and after 1 year returned with 20 % profit.
If he compares the 20 % return with his normal bank deposit which usually returned 4 % annually and for fixed deposit which returned 7% To 8% annually, from these investor can conclude that he made more profit from his investment portfolio.
When we check with price or index it may not be the same compare to last year. How an investor can check, how much profit he/she made, bench marking the return of an investment help you in that.
Bench marking the risk and return of an investment portfolio help you to understand whether your investment portfolio made profit or not. If the benchmark comes around 25 % and you have received only 20 % means your profit from that investment portfolio is not met the actual return.
What Sectoral Index in NSE ?
If you analyze the Nifty50 it gives the overall index for NSE. Suppose if an investor need to understand how a particular sector working these sectoral index help in that cases.
Below I have mentioned latest sectors present in NSE
- Nifty Auto Index
- Nifty Bank Index
- Nifty Consumer Durable Index
- Nifty Financial Services Index
- Nifty Financial Services 25/50 Index
- Nifty FM-CG Index
- Nifty Healthcare Index
- Nifty IT Index
- Nifty Media Index
- Nifty Metal Index
- Nifty Oil & Gas Index
- Nifty Pharma Index
- Nifty Private Bank Index
- Nifty PSU Bank Index
- Nifty Realty Index
These all are collectively called sectoral index. Sectoral indexes help an investor to summarize and benchmark the data for a particular sector.
BSE or NSE which stock exchange is better for beginners
At the time of NSE introduced to the Indian economy there’s a battle based on the volume happened between BSE and NSE. Few points which help the investor to decide which market to enter.
- Liquidity of shares
- Derivative market
- Selection of stocks
Liquidity is considered as a back bone for all investors. Higher the liquidity means higher the spreads, lower the slippages and ease of entry and exist to the market.
If a market is considered as more liquidity means generally the market is associated with less risk. Liquidity is more helpful for intraday traders and swing traders.
If you evaluate the ratio between BSE and NSE you can see huge difference. Turnover considered as the overall value of a shares traded during the particular period.
Higher the turnover means more trade on the market. NSE has huge percentage of turnover compared to BSE
Derivative market
Liquidity is more important in derivative market. NSE considered as the most liquid stock exchange for derivatives, futures and options. Majority of trades in derivatives happened in NSE.
Selection of stocks
In BSE more than 5000 companies are listed and for NSE around 2000 companies are listed. NSE have restrictions in terms of listing the companies. This indicates that compared to NSE, BSE have more options to select stocks if you are looking for long term investment.
To conclude if you want to be an intraday trader or swing trader NSE is the best option that you can choose.
If you are interested to invest in derivative market, future and options then NSE is the better choice for that.
If you are looking for a long term investment then you can look at the stocks in both market. In BSE you can see lot more companies compared to NSE
Source: NSE Website: https://www.nseindia.com
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