Before going deep into this topic, it is important to know-
A stock market index is a collection of different stocks which fall within a certain category or having certain similar characteristics. There are different types of stock market indices such as sectoral indices which represent the stocks of particular sectors, Volatility indices which represent the relative volatility in the market, etc. Stock market indices are used to analyze the overall performance of the market.
For example, there are thousands of companies that are listed on the exchanges. For an individual investor, it is not possible to track the performance of the all-listed companies and invest in a certain stock, and to overcome this problem indices are used to track the performance of the market.
An Index contains a group of stocks. But the individual performance of the stock is weighted to calculate the overall performance of that index. Stocks with higher weightage have more influence on the movement of that index and the stocks which are having lower weightage have less influence on the movement of the index.
Generally, stock market indices are weighted according to 3 categories-
Market capitalization is the value you get by multiplying the total number of shares by the present share price. Market-capitalization-weighted indices, like the Nifty50 index, give more weight to larger companies with higher market capitalizations. That is why reliance is having more weightage than any other companies which are part of Nifty 50.
In a price-weighted index, each company in that index makes up a fraction of the total index proportional to that company’s share stock price per share. In simple words, stocks with higher prices contribute more towards the index.
In an equal-weighted index, each stock has equal weightage irrespective of share price and market capitalization.
The NIFTY 50 is a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange. This index includes 13 sectors of the Indian economy such as information technology, financial services, consumer goods, entertainment and media, financial services, metals, pharmaceuticals, telecommunications, cement and its products, automobiles, pesticides and fertilizers, energy, and other services.
This index was established on 22 April 1996 with a base price of 1000. Nifty 50 is owned and managed by NSE Indices (previously known as India Index Services & Products Limited), which is a wholly-owned subsidiary of the NSE Strategic Investment Corporation Limited.
Here is the list of stocks that are part of nifty 50 –
|Name of the company||Sector||Weight|
|1||Reliance Industries Ltd.||Energy - Oil & Gas||10.77%|
|2||HDFC Bank Ltd.||Banking||10.66%|
|3||Infosys Ltd.||Information Technology||7.42%|
|4||Housing Development Finance Corporation Ltd.||Financial Services||7.29%|
|5||ICICI Bank Ltd.||Banking||6.59%|
|6||Tata Consultancy Services Ltd.||Information Technology||4.86%|
|7||Kotak Mahindra Bank Ltd.||Banking||4.16%|
|8||Hindustan Unilever Ltd.||Consumer Goods||3.04%|
|9||Axis Bank Ltd.||Banking||2.87%|
|10||ITC Ltd.||Consumer Goods||2.84%|
|11||Larsen & Toubro Ltd.||Construction||2.78%|
|12||State Bank of India||Banking||2.39%|
|13||Bajaj Finance Ltd.||Financial Services||2.23%|
|14||Bharti Airtel Ltd.||Telecommunication||2.13%|
|15||Asian Paints Ltd.||Consumer Goods||1.64%|
|16||HCL Technologies Ltd.||Information Technology||1.58%|
|17||Maruti Suzuki India Ltd.||Automobile||1.46%|
|18||Mahindra & Mahindra Ltd.||Automobile||1.23%|
|19||UltraTech Cement Ltd.||Cement||1.13%|
|20||Sun Pharmaceutical Industries Ltd.||Pharmaceuticals||1.03%|
|21||Wipro Ltd.||Information Technology||0.97%|
|22||IndusInd Bank Ltd.||Banking||0.96%|
|23||Titan Company Ltd.||Consumer Goods||0.94%|
|24||Bajaj Finserv Ltd.||Financial Services||0.93%|
|25||Nestle India Ltd.||Consumer Goods||0.92%|
|26||Tata Motors Ltd.||Automobile||0.92%|
|27||Tech Mahindra Ltd.||Information Technology||0.91%|
|28||HDFC Life Insurance Co. Ltd.||Insurance||0.88%|
|29||Power Grid Corporation of India Ltd.||Energy - Power||0.88%|
|30||Dr. Reddys Laboratories Ltd.||Pharmaceuticals||0.86%|
|31||Tata Steel Ltd.||Metals||0.86%|
|32||NTPC Ltd.||Energy - Power||0.83%|
|33||Bajaj Auto Ltd.||Automobile||0.79%|
|34||Adani Port and Special Economic Zone||Infrastructure||0.79%|
|35||Hindalco Industries Ltd.||Metals||0.79%|
|36||Grasim Industries Ltd.||Cement||0.74%|
|37||Divis Laboratories Ltd.||Pharmaceuticals||0.68%|
|38||Hero MotoCorp Ltd.||Automobile||0.67%|
|39||Oil & Natural Gas Corporation Ltd.||Energy - Oil & Gas||0.65%|
|41||Britannia Industries Ltd.||Consumer Goods||0.63%|
|42||JSW Steel Ltd.||Metals||0.61%|
|43||Bharat Petroleum Corp. Ltd.||Energy - Oil & Gas||0.58%|
|44||Eicher Motors Ltd.||Automobile||0.56%|
|45||Shree Cement Ltd.||Cement||0.56%|
|46||SBI Life Insurance Co.||Insurance||0.54%|
|47||Coal India Ltd.||Energy & Mining||0.51%|
|49||GAIL (India) Ltd.||Energy - Oil & Gas||0.42%|
|50||Indian Oil Corporation Ltd.||Energy - Oil & Gas||0.40%|
The Sensex is a benchmark Indian stock market index that represents 30 well-established and financially sound companies listed on the Bombay Stock Exchange. Sensex was established on 1st Jan 1986 with the base period 1978-79 and base value of 100. Sensex is the combination of two words Sensitive and Index.
By using the information from 1979 onwards, the long-term rate of return of Sensex comes out to be 18.6% per annum.
Below is the list of 30 companies that are the part of Sensex index-
|Name of the company||Sector||Weight|
|1||Reliance Industries Ltd.||Integrated Oil & Gas||0.1199|
|2||HDFC Bank Ltd.||Banks||0.1184|
|3||Infosys Ltd.||IT Consulting & Software||0.0906|
|4||Housing Development Finance Corporation Ltd.||Housing Finance||0.083|
|5||ICICI Bank Ltd.||Banks||0.0737|
|6||Tata Consultancy Services Ltd.||IT Consulting & Software||0.0576|
|7||Kotak Mahindra Bank Ltd.||Banks||0.0488|
|8||Hindustan Unilever Ltd.||FMCG||0.0375|
|10||AXIS Bank Ltd.||Banks||0.0335|
|11||Larsen & Toubro Ltd.||Construction & Engineering||0.0313|
|12||Bajaj Finance Ltd.||Finance (including NBFCs)||0.0263|
|13||State Bank of India||Banks||0.0259|
|14||Bharti Airtel Ltd.||Telecom Services||0.0231|
|15||Asian Paints Ltd.||Furniture,Furnishing,Paints||0.0197|
|16||HCL Technologies Ltd.||IT Consulting & Software||0.0189|
|17||Maruti Suzuki India Ltd.||Cars & Utility Vehicles||0.0172|
|18||Mahindra & Mahindra Ltd.||Cars & Utility Vehicles||0.0148|
|19||UltraTech Cement Ltd.||Cement & Cement Products||0.014|
|20||Sun Pharmaceutical Industries Ltd.||Pharmaceuticals||0.0116|
|21||Tech Mahindra Ltd.||IT Consulting & Software||0.0111|
|22||Titan Company Ltd.||Other Apparels & Accessories||0.0111|
|23||Nestle India Ltd.||Nestle India Ltd.||0.0107|
|24||Bajaj Finserv||Finance (including NBFCs)||0.0104|
|25||IndusInd Bank Ltd.||Banks||0.0103|
|27||Tata Steel Ltd.||Iron & Steel/Interm.Products||0.0101|
|28||NTPC Ltd.||Electric Utilities||0.0094|
|28||Bajaj Auto Ltd.||2/3 Wheelers||0.0086|
|30||Oil & Natural Gas Corporation Ltd.||Exploration & Production||0.0073|
Along with Nifty 50 and Sensex, Bank nifty, CNX IT, CNX Metal, CNX Auto are the major sectorial stock market indices of the Indian stock market.
I hope that, in today’s module of beginner’s guide to the stock market, I was able to explain to you about stock market indices and how stock market indices work. Please let us know your thoughts and queries in the comment section.
Know more about the basics of the stock market, from our previous blog of the series, “Best Beginner’s Guide to the Stock Market | Module 1 | What is Stock Market and How it works?” or check our video “Basics of Stock Market” on Youtube to know more about it.
If you want to know more about Risk Management & Intraday Trading Strategies you can refer to our previous blog on