Chapter 3 of 5
Reading an index: Sensex and Nifty
6 min read
An index is a basket of shares used to describe how a market, or part of it, is doing. Instead of tracking thousands of prices, you track one number.
The two you hear about most
- Sensex: the BSE's index of 30 large, established companies.
- Nifty 50: the NSE's index of 50 large companies across sectors.
How it is weighted
Most Indian indices are weighted by free-float market capitalisation: a company's weight depends on the value of the shares actually available to the public, not those held by promoters. Bigger free-float companies move the index more.
That means an index can rise even while most stocks fall, if the largest few are rising. This is why breadth, the number of stocks rising compared with falling, is worth checking alongside the index.
Indices beyond the headline ones
- Broad indices such as the Nifty 500 cover more of the market.
- Midcap and smallcap indices track smaller companies.
- Sector indices, such as Bank or IT, track one industry.
- Total return indices include reinvested dividends; plain price indices do not.
Key takeaways
- An index summarises a basket of shares, usually weighted by free-float market cap.
- A few big companies can move an index on their own.
- Use the right benchmark for what you are measuring.
This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.