The term “Dalal Street” came to be used in the same way as “Wall Street” in the U.S., referring to the country’s major stock exchanges.

What are Nifty and Sensex?

To understand Sensex and Nifty, you must first of all have an idea about the Indian stock exchanges.

The ‘Bombay stock exchange’ and the ‘National stock exchange’ are the two important stock exchanges in India.

Bombay Stock Exchange (BSE)

• The Bombay stock exchange is on Dalal Street, Mumbai in Maharashtra.
• BSE was established in the year 1875 and considered to be Asia’s oldest stock exchange.
• BSE is the fastest stock exchange in the world, with a median trade speed of 6 microseconds.
• BSE is the 11th largest stock exchange in the world with a market capitalization of about $1.40 Trillion in March 2016.
• There are about 5500 companies that are listed on the BSE.

Sensex is an Index. As there are thousands of companies listed on a stock exchange, it’s really difficult to track every single stock to evaluate the market performance at a time. Therefore, Sensex is a small sample that is taken, which is considered to represent the whole market. This small sample called Index helps to measure the value of a section of the stock market. The index is computed based on the prices of the selected stocks.

SENSEX:

Sensex which is also called BSE 30, is the market index consisting of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE).

• Thirty companies are included based on the free-float market capitalization.
• They are different companies taken from the different sectors which represent a sample of large, liquid, and representative companies.
• The year 1978-79 is the base year of Sensex with a base value of 100.
• It is an indicator of market movement.
• When Sensex goes up, it means that most of the stocks in India also went up during the given period. If the Sensex on the other hand goes down, it would mean that the price of many major stocks on the BSE has gone down.

For example, suppose the Sensex is 30,000 today. If Sensex drops to 29,500 tomorrow, it means that the majority of the 30 companies' financial condition is not good i.e. their share price is falling.

National Stock Exchange (NSE):

The top stock exchange of India is the National Stock Exchange (NSE), located in Mumbai, Maharashtra, India, and was started to end the monopoly of the Bombay stock exchange in the Indian stock market.

• Started in 1992, NSE was the first electronic exchange in India.
• NSE the first exchange in India to provide a fully automated, modern, screen-based electronic trading system, which offered the easy trading facility to the investors spread across the country.
• NSE was the 12th-largest stock exchange in the world as of March 2016 with a total market capitalization of more than US$1.41 trillion.
• The NIFTY 50 which is an NSE index, is considered as a barometer of the Indian capital markets by investors in India and other countries.

NIFTY:

The benchmark stock market index for the Indian equity market is NIFTY 50 of the National Stock Exchange of India. Nifty is managed and owned by India Index Services and Products (IISL).

• The year1995 is taken as the base year with the base value set at 1000.
• Nifty is calculated based on 50 stocks that are actively traded in the NSE
• The top 50 stocks are selected from 24 sectors.

NOTE: Both the Sensex and Nifty are indicators of market movement. When Sensex or Nifty goes up, it indicates that most of the stocks in India went up during this period.

We can say concerning NIFTY and NSE that:

• When Nifty moves up, it indicates that the price of the stock of the majority of the stocks on NSE has gone up.
• When Nifty moves down, it indicates that the stock price of the majority of the stocks on NSE has gone down.

An increase in Sensex or Nifty indicates economic growth. During the recession of 2008-09 in India, the Sensex crashed over 12000 points (-60%). The fall in the Sensex was an indicator of the recession

Importance of Market Index:

• The market indexes act as a barometer for market behavior. It gives an overall idea of whether the majority of the stocks have gone up or gone down.
• Market Index is often used as a benchmark portfolio performance.
• Market Index reflects the investor’s sentiments.
• Market indexes are used for comparison and sorting of the various companies.
• Index funds use Market indexes in passive fund management.