Fundamentals of Stock Market in Layman words

What are Sensex and Nifty...?

Like we have centigrade and Farenheit to measure the temperature of our body, this Farenheit and Centigrade are the scale of measurement of temperature. Likewise to understand the growth of Indian economy we must have a scale of measurement which is also called as Indicator and those are SENSEX and Nifty.

As our economy grows SENSEX and NIFTY which is an indicator also grows (increases).

This is how a typical indicator in graph form looks like while you will get when search in the internet. The graph is green means, SENSEX is increasing and is more than the last day closing.

Are there only two Indicator?

No, SENSEX and NIFTY are majorly two indicators that are often used to understand the over-all growth of the economy. But there are other indicators too which are sector specific/Industry type specific and those indicators denotes the growth of specific sector class.

What are other Indicators..?

Bank Nifty, Nifty Bees, Nifty Next 50, Nifty MIdcap, Nifty IT, Nifty Pharma, Nifty PSU Bank etc. all are developed by SEBI to track the improvement in each sector and are listed in exchanges like BSE (Bombay Stock exchange and NSE (National Stock Exchange).

What comprises of SENSEX and NIFTY...?

Sensex is made of India Top 30 Company and Nifty is made of India Top 50 company. Sensex and Nifty are the two major indices of India under National Stock exchange and Bombay Stock exchange.

Likewise for other countries we have:

USA- Nasdaq, S&P 500 (Standard & Poor), Dow Jones

Japan- Nikkei

Hong Kong- Hang Seng

Australia- ASX

UK- FTSE 100

Germany - DAX

China- SZSE composite (Shenzhen Stock Exchange)

France- CAC 40

How companies are ranked in the indices (eg: SENSEX or any foreign index like Nikkei)?

Companies are ranked based on the market capitalization. Company with highest market capitalization will stand first on the row.

If you see USA market Index NASDAQ which comprises of USA's top IT companies and APPLE is on top with highest market capitalization.

How market Capitalization gets calculated?

If Apple company have total 500 share and price of each share is Rs 200 then the  market capitalisation of this company would be Rs( 200 * 500) = 100000. 

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