The stock market concept isn't limited to stocks available for trading. There are platforms where securities are traded, known as the NSE and BSE. Then, to regulate these platforms and monitor investor activities, there comes a regulator called SEBI. Next, to understand how specific securities or groups of securities have performed, the market has Nifty and Sensex benchmarks. Let's learn about each of these bodies in detail.
Sensex meaning
Sensex essentially refers to the Bombay Stock Exchange (BSE) index. The BSE consists of 30 of the largest and most actively traded stocks. The index's history dates back to January 1, 1986. It was set with a base year of 1978-79 and a starting value of 100 points.
SENSEX is calculated using a free-float capitalisation methodology. Here is the formula:
Sensex = [ {(Total Free – Free Float Market Cap of 30 Shares) ÷ Base Period Market Cap} × Base Value]
The index is subject to semi-annual review in June and December to ensure it accurately reflects the current market conditions.
Sensex performance to date
The 2000s saw the Sensex reach new milestones with the boom in the IT sector. However, the index saw a major dip in 2008 due to global economic downturns.
As of May 2024, the index has reached an all-time high, surpassing the 75,000-mark. Strong corporate earnings and favourable government policies supported the growth of the index in the last few years.
Nifty meaning
National Stock Exchange (NSE) launched the Nifty index on April 21, 1996. It portrays the weighted average of 50 of the most prominent Indian companies listed on the NSE.
- The stock's Market-Wide Position Limit (MWPL) should be at least INR 500 crores. The MWPL refers to the maximum number of shares that an investor or group of investors can hold collectively.
- The median quarter-sigma order size of the stock over the last six months should be at least INR 25 lakhs. This metric measures the order size needed to impact the stock price by one-quarter of a standard deviation.
- On a rolling basis, the company issuing stock must be among the top 500 companies in terms of average daily market capitalisation over the previous six months.
Other qualifying parameters include the trading volume and average daily traded value.
Nifty performance to date
In the past 15 years, the Nifty 50 Total Returns Index (TRI) has delivered a Compound Annual Growth Rate (CAGR) of around 11.8%. The following 5-year period saw an increase in CAGR to 17.6%.
Volatility has gradually decreased over these periods while the market fluctuations have somewhat stabilised. From a 22% volatility rate over the 15 years, it declined to 18.2% in the last five years.
BSE meaning
The Bombay Stock Exchange(BSE) is a platform for trading stocks, bonds, and derivatives. BSE’s inception dates back to the 1850s when a group of stockbrokers would gather under banyan trees in front of Mumbai’s Town Hall. The formal establishment occurred in 1875.
Stocks on the BSE are categorised into groups like ‘A’, ‘B’, ‘T’, ‘S’, and ‘Z.’ This differentiation is established through liquidity, company size, and compliance with the exchange’s guidelines. For example, ‘A’ group stocks are highly liquid and comply with the exchange’s requirements.
NSE meaning
NSE was established in 1992 and started operations in 1994. This exchange was credited with introducing a fully automated, screen-based trading system, a first in India. NSE’s role is not limited to facilitating trading securities. Instead, it also serves as a regulator, index provider, data and analytics hub, IT services provider, educator, and market developer.
SEBI meaning
The Securities Exchange Board of India was established in April 12, 1988 and constituted as a non-statutory body. It wasn't until January 30, 1992, that SEBI was provided with statutory powers through the SEBI Act 1992.
SEBI, as a regulatory body, registers and regulates:
- Stockbrokers and sub-brokers
- Share transfer agents
- Bankers to an issue
- Trustees of trust deeds
- Registrars to an issue
- Merchant bankers
- Underwriters
- Portfolio managers
- Investment advisers
Under developmental functions, it promotes investor education and training of securities market intermediaries. Its protective functions involve checking price rigging, preventing insider trading, and promoting a code of conduct for intermediaries.
Conclusion
Understanding the functions and importance of all exchanges, indexes, and a regulator can help you understand the market better.