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Indian stock market history - Exchanges and Indices

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Indian stock market history - Exchanges and Indices

Indian stock market history can be traced back to the mid 19th century when the origins of the Bombay Stock Exchange were laid. However, it was only in the 1950s that the Securities Contract Regulation Act (SCRA) recognized the BSE as a stock exchange. Of course, the NSE came much later in 1994, although it has managed to build volumes substantially in the last 20 years; both in equities and derivatives. Before getting into indices, let us first look at what products trade on the BSE and the NSE.

NSE Trades in BSE Trades in
Equities, ETFs, IPOs, OFS, Mutual Funds, Index Futures, Index Options, Stock Futures, Stock Options, VIX Futures, Commodity Derivatives, Single Currency Futures, Cross Currency Futures, Single Currency Options, Cross Currency Options, Interest Rate Futures, Government Securities and Corporate Bonds The BSE also provides trading in all of the above except VIX futures. The volumes on equity futures and options are larger on NSE than on BSE

What are indices all about?

Indices are benchmarks that give an idea of how the stock market overall is performing. The index is created with a sample of companies which best represent the market as a whole. Obviously, as the undertone of the market changes, the index components also change. All stock market indexes are with reference to a base year. The BSE Sensex uses 1979 as the base year while the NSE uses 1995 as the base year. All values that you see on a real time basis are with reference to the base year value. Indices are managed by a professional Index Committee which meets periodically to decide on the methodology, inclusion of stocks, exclusion of stocks etc. Let us look at some of the key indices in the stock exchanges.

BSE Sensex and other sectoral indices

The Sensex (Sensitive Index) has been the barometer of the Indian markets and the Indian economy for a very long time. Sensex has a base value of 100 for the base year 1979. Effectively, the current value of nearly 40,000 on the Sensex represents a 400 times value creation on the Sensex index over the last 40 years. That is nearly 16% annualized returns on the BSE Sensex over the period. In other words an investment of Rs.1 lakh in the Sensex stocks in 1979 would be valued at Rs.4 crore today. Here are the 3 things you need to know about the Sensex.

  • Sensex is a free float market cap weighted index consisting of 30 stocks. That means the index gives more weightage to a stock with more share holding in the public domain rather than with promoters. For example, ITC gets a much higher weightage than Hindustan Unilever on the indices due to its substantially higher free float. 
  • Sensex had crossed the psychological level of 40,000 for the first time on 23rd May; the day of the election vote counting in the 2019 elections. There are just about 6 companies that are common between the original Sensex and the current Sensex.
  • The Sensex touched the 10,000 mark for the first time in 2006. In fact, since touching a peak of 21,000 in 2008, the Sensex is yet to double from its pre-crisis levels in the last 11 years. Apart from the Sensex, the BSE also has a host of indices dedicated to mid caps, small caps and sectors. BSE also has a dollar index (Dollex) launched in 2001 which helps you calculate index returns in dollar terms

Nifty, Bank Nifty and other sectoral indices on the NSE

Indices on the NSE are widely tracked largely because the futures and options on these indices are among the most liquid. Not surprisingly, the Nifty is widely traded by institutions and is also traded on the Singapore Exchange by the name of SGX Nifty. Here are the key points you need to know about NSE indices.

  • The Nifty consists of 50 stocks and it is also based on the free float market cap concept. Like the Sensex, the Nifty is also a barometer of the market overall. It uses 1995 as the base year with a value of 1000 and is currently quoting below the 12,000 mark. For a brief period, the Nifty had 51 stocks when the stock of Tata Motors DVR was also included in the Nifty Index. That was also the only time two stocks of the same company found a place in the Nifty. Banking and Financial Services have a substantial 38% weightage in the Nifty.
  • Bank Nifty and the Nifty IT indices are the other two indices on which there is liquidity to trade futures. These indices are closely tracked and are representative of the specific sectors. Bank Nifty was the first futures where weekly settlements were introduced and now weekly settlements are available on Nifty also.
  • In addition, the NSE has a host of other indices like the mid cap indices, small cap indices, other sectoral indices, thematic indices etc.
Stock Market indices are a barometer of the market and also of the economy. While the NSE Nifty and the BSE Sensex is an indicator of the market as a whole, both the exchanges also have sectoral indices and thematic indices to cater to specific needs. The chart below captures the NSE and BSE index picture in a nutshell.

NSE - Index Category Number of Indices BSE – Index Category Number of Indices
Broad Market Indices 13 Broad Market Indices 18
Sectoral Indices 11 Sectoral Indices 19
Strategy Indices 14 Sectoral Indices 10
Thematic Indices 10 Thematic Indices 06
Fixed Income Indices 07 Sustainability Indices 03
Volatility Indices 01 Volatility Indices 03
Total Number of Indices 56 Composite Bond Index 01
G-Sec Index 06
Corp Bond Index 05
Money Market Index 01
Total Number of Indices 72
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