Nifty 50 and Sensex

In simple terms

Thousands of companies are listed in India, and on any day some shares rise while others fall. An index answers a simpler question: overall, did the market go up or down today, and by how much?

An index tracks the combined price movement of a fixed basket of shares. India's two best-known indices are:

• The Sensex, which follows 30 large, well-established companies listed on BSE.
• The Nifty 50, which follows 50 large companies listed on NSE.

When a news reader says "the market fell 1% today", they almost always mean one of these two indices fell 1%.

Why big companies count for more

Most broad indices, including the Nifty 50 and Sensex, do not treat every company equally. They weight each company by its size, measured by market capitalisation, using only the shares that are freely available for trading (the free float), and excluding blocks held by promoters and other long-term holders. So a company worth ₹10 lakh crore moves the index far more than one worth ₹1 lakh crore.

Points and percentages

An index is quoted as a number, such as 24,000. The number itself has no deep meaning; it reflects a base value set many years ago and everything that has happened since. What matters is how much it changes.

A fall of 500 points sounds dramatic, but with the index at 25,000 it is a 2% fall. Twenty years ago, when index levels were far lower, a 500-point fall was a much bigger move. Always convert points into a percentage before comparing.

Why indices are useful

• A quick summary. One number tells you the general direction of large Indian companies.
• A benchmark. You can compare your own portfolio, or a fund manager's, with the index. If a fund charging fees consistently does worse than its benchmark index, that is worth knowing.
• The basis for index funds. Index funds and exchange-traded funds (ETFs) simply buy all the shares in an index in the same proportions, so investors can own the whole basket at low cost. These are covered in the investing path.

Why it matters

News coverage turns index levels into drama: "Sensex crashes 800 points", "Nifty hits record high". Understanding what an index is lets you put those headlines in proportion. An 800-point move may be a modest percentage. A record high says the index is above every previous level, not that it is about to fall or keep rising.

It also stops you assuming your own investments moved with the index. If you own small companies, or a few shares in particular sectors, your results can be very different from the Nifty 50's.

Limitations

An index shows what happened to a specific basket, chosen by specific rules. It leaves out most listed companies, especially smaller ones. Its weighting means it can be dominated by a few large companies or sectors. And the basket changes: companies are added and removed at regular reviews, so today's index is not made of the same companies it was made of ten years ago.

Index providers publish detailed methodology documents explaining exactly how constituents are chosen and weighted. Those rules can be revised; the counts above were checked on the date shown.

Common mistakes

• Comparing points across years. A 1,000-point move today is a far smaller percentage than it was when the index was lower. Use percentages.
• Assuming the index is "the market". It represents large companies. Mid-sized and small companies can move very differently.
• Thinking every company in the index matters equally. The largest weights dominate.
• Treating a record high as a signal. An index at a record high has, by definition, never been higher. That alone does not predict what comes next.

Try it yourself

Look up today's closing values of the Nifty 50 and the Sensex and the change from the previous day in points.

1. Convert each change into a percentage.
2. Find the list of the largest weights in the Nifty 50 on the NSE Indices website. How much of the index do the top five companies make up together?
3. Pick one company you know that is not in either index. How did its share price move on the same day?