7.1 – Overview
If I were to ask you to give me a real-time summary of the traffic situation in your city, how would you possibly do it?
Your city may have thousands of roads and junctions; it is unlikely you would check every road in the city to find the answer. The wiser thing for you to do would be to quickly check a few important roads and junctions across the city’s four directions and observe how the traffic is moving. If you observe chaotic conditions across these roads, you can conclude the traffic situation is chaotic; else, traffic can be considered normal.
The few important roads and junctions you tracked to summarize the traffic situation served as a barometer for the entire city’s traffic situation!
Drawing parallels, if I were to ask you how the stock market is moving today, how would you answer my question? There are approximately 5,000 listed companies on the Bombay Stock Exchange and about 2,000 on the National Stock Exchange. It would be clumsy to check every company, figure out if they are up or down for the day, and then give a detailed answer.
Instead, you would check a few important companies across key industrial sectors. If a majority of these companies are moving up, you would say markets are up; if the majority are down, you would say markets are down; and if there is a mixed trend, you would say markets are sideways or flat for the day.
So essentially, identify a few companies to represent the broader markets. Whenever someone asks you how the markets are doing, you check the general trend of these selected stocks and then answer. These companies that you have identified collectively make up the stock market index!
7.2 – The Index
Luckily you need not track these selected companies individually to get a sense of how the markets are doing. The important companies are pre-packaged and continuously monitored to give you this information. This pre-packaged market sentiment indicator is called the ‘Stock market Index.’
There are a few important indices in India. The S&P BSE Sensex represents the Bombay stock exchange, and the Nifty 50 represents the National Stock exchange. Apart from these two, there is the Nifty Bank Index (Bank Nifty), which is quite popular. Bank Nifty represents the banking sector as a whole.
S&P stands for Standard and Poor’s, a global credit rating agency. S&P has the technical expertise in constructing the index they have licensed to the BSE. Hence the index also carries the S&P tag. NSE itself maintains the indices via a related company called NSE Indices Limited.
Nifty 50 consists of the most frequently traded stocks on the National Stock Exchange; we will soon discuss the methodology basis on which these indices are constructed. An ideal index gives us an updated, accurate representation of the market sentiment. The movements in the Index reflect the changing expectations of the market participants. When the index goes up, it is because the market participants think the future will be better. The index drops if the market participants perceive the future pessimistically.
7.3 – Practical uses of the Index
Some of the practical uses of Index are discussed below.
Information – The index reflects the overall sentiment and trend in the market. The index broadly represents the country’s state of the economy. A stock market index that is up indicates people are optimistic about the future. Likewise, people are pessimistic about the future when the stock market index is down.
For example, the Nifty 50 value as of 21st November 2022 is 18150, but around six months ago, the Nifty 50 was at 15820. The index has moved 2300 points or about 14.75% higher in six months, indicating bullishness in the market. In other words, market participants have been optimistic about the Indian economic future.
The time frame for calculating the index can be for anything. For example, the Index at 9:30 AM on 21st November was 18140, but an hour later, it moved to 18099. A drop of nearly 40 within an hour. Such movement indicates that the market participants are not enthusiastic from a short-term perspective.
Benchmarking – A yardstick to measure the performance is required for all the trading or investing activity people do. Assume over the last year, you invested Rs.100,000/- and generated Rs.20,000 return to make your total corpus Rs.120,000/-. How do you think you performed? Well, on the face of it, a 20% return looks great. However, what if Nifty moved to 30% during the same year?
Well, suddenly, it may seem to you that you have underperformed in the market! Usually, the objective of market participants is to outperform the Index. Now, if not for the Index, you can’t figure out how you performed in the stock market. It would be best if you had the index to benchmark the performance.
Trading – Trading on the index is probably one of the most popular uses of the index. Majority of the traders in the market trade the index. They take a broader call on the economy or general state of affairs and translate that into a trade. The trader usually takes a short-term call on the index to trade.
For example, imagine this situation. At 10:30 AM, the Finance Minister is expected to deliver the budget speech. An hour before the announcement Nifty index is at 18,150 points. You expect the budget to be favorable to the nation’s economy. What do you think will happen to the index? Naturally, the index will move up. So to trade your point of view, you may want to buy the index at 18,150. After all, the index is the representation of the broader economy.
So as per your expectation, the budget is good, and the index moves to 18,450. You can now book your profits and exit the trade at a 300 points profit! Trades such as these are possible through what is known as the ‘Derivative’ segment of the markets. We are probably a bit early to explore derivatives, but for now, do remember that index trading is possible through the derivative markets.
Portfolio Hedging – Investors usually build a portfolio of stocks. A typical portfolio contains 15 – 20 held for the long term. While the stocks are held from a long-term perspective, they could foresee a prolonged adverse movement in the market (ex-2008), potentially eroding the capital in the portfolio. Investors can use the index to hedge the portfolio in such a situation. We will explore this topic in a futures trading module.
7.4 – Index construction methodology
Knowing how the index is constructed is important, especially if one wants to advance as an index trader. As we discussed, the Index is a composition of many stocks from different sectors representing the economy’s state. To include a stock in the index, it should qualify for certain criteria. Once qualified as an index stock, it should continue to qualify on the stated criteria. If it fails to maintain the criteria, the stock gets replaced by another stock that qualifies the prerequisites.
Based on the selection procedure, the list of stocks is populated. Each stock in the index should be assigned a certain weightage. Weightage, in simpler terms, defines how much importance a certain stock in the index gets compared to the others. For example, if ITC Limited has a 3.85% weightage in the Nifty 50 index, it is as good as saying that 3.85% of Nifty’s movement can be attributed to ITC. You can check the weights of all index stocks here.
The obvious question is – How do we assign weights to the stock that make up the Index?
There are many ways to assign weights, but the Indian stock exchange follows a free-float market capitalization method. The weights are assigned based on the company’s free-float market capitalization. The larger the market capitalization, the higher the weight.
Free float market capitalization is the product of the total number of shares outstanding in the market and the stock price.
For example, company ABC has 100 shares outstanding in the market, and the stock price is at 50, then the free-float market cap of ABC is 100*50 = Rs.5,000.
At the time of writing this chapter, the following are the top 10 index heavyweight-
| Sl No | Name of the company | Industry | The weightage (%) |
|---|---|---|---|
| 01 | Reliance Industries Ltd | Oil & Gas | 11.03 |
| 02 | HDFC Bank Ltd | Bank | 8.26 |
| 03 | ICICI Bank Ltd | Bank | 7.94 |
| 04 | Infosys Ltd | IT | 7.06 |
| 05 | HDFC Ltd | Housing | 5.62 |
| 06 | TCS Ltd | IT | 4.1 |
| 07 | ITC Ltd | FMCG | 3.85 |
| 08 | Kotak Mahindra Bank | Bank | 3.51 |
| 09 | L&T Ltd | Infra | 3.07 |
| 10 | Axis Bank Ltd | Bank | 3.0 |
As you can see, Reliance Industries Ltd has the highest weightage. This means the Nifty index is most sensitive to price changes in Reliance.
7.5 – Sector-specific indices
While the Sensex and Nifty represent the broader markets, certain indices represent specific sectors. These are called sectoral indices. For example, the Bank Nifty on NSE represents the mood specific to the banking industry. The CNX IT on NSE represents the behavior of all the IT stocks in the stock markets. Both BSE and NSE have sector-specific indexes. The construction and maintenance of these indices are similar to the other major indices.
Key takeaways from this chapter
- An index acts as a barometer of the whole economy.
- An index going up indicates that the market participants are optimistic.
- An index going down indicates that the market participants are pessimistic.
- There are two main indices in India – The BSE Sensex and NSE’s Nifty 50
- An index can be used for various purposes – information, benchmarking, trading and hedging.
- Index trading is probably the most popular use of the index.
- India follows the free-float market capitalization method to construct the index.
- There are sector-specific indices that convey the sentiment of specific sectors.
Hii Sir,
Can you help me in this calculation to find out the nifty returns over last 2 years,
Nifty 50 on Nov 2022=18150
Nifty 50 on Oct 2022=24800
So beginning value-18150,
ending value-24800
So can you please help to find returns using the cagr formula,coz when I tried to find,I got return only around 1%,I couldn\’t find what went wrong!
CAGR = [Ending Value/Starting value]^(1/time) – 1
= [24800/18150]^(1/2) – 1
= 16.89%
I think it should -16.89% as the dates in question indicate the market is less in the month of Nov 18150 as compared to Oct 24800.
Thanks Karthik Sir for answering promptly !
Good luck, Sowmya!
Missed adding in the previous comment. Appreciate this initiative Karthik sir and the great work you and your team are doing!
One more question I had regarding the index is when are the stocks belonging to an index revised. Is there a frequency ?
Thanks for the kind words, Sowmya. Revision happens once a quarter.
Why does Nifty 50 have majority of banking stocks? I assume there may be other stocks of companies which may have a free floating market capitalization better than the banks like Axis, Kotak and ICICI
Thats because banks have the largest market cap.
Could you please brief on how a stock gets qualified to the index? Like, the criteria for stock selection to the index or how diversity of sectors in the index ensured. Thanks Karthik!
Here you go – https://www.niftyindices.com/indices/equity/broad-based-indices/NIFTY–50 , you can check for Nifty and many other indices.
In a free-float market cap system, is the weight given to a company continuously changing as the stock price changes?
Yes, changes as per the free float.
HI Karthik Sir
I have a few questions.
1. You said Indian stock exchanges uses free float market capitalization method in order to construct indices, Based on Free float, I have a question. Suppose Company ABC has 15% free float, and the share demand is 2x and supply is x. Apparently It should go up based on (Demand and Supply rule), But can you tell me how 15% of float can decide the whole market capitalization of the company ? Anyone with Large pockets can manipulate the stocks, right ? I think the same happened with Adani (as shown in Hindenburg report, Please correct me If I am wrong). If I am right, then the so called notional value (wealth) of investors and promoters of a company is still hanging right ? because only 15% has decided the fate of 100%\’s value. It\’s not correct to decide the market cap based on those 15%.
2. You said Indices can be used for Portfolio Hedging, What does actually mean to hedge ? I have heard terms like Hedge funds, Hedging, I don\’t quite get that, If you can throw some light on this, It would be great.
3. Since BSE Sensex is using 30 items and NSE Nifty50 has 50 item, is it possible after some long term, their return value vary ? Like over the period of 5 years, BSE Sensex show 45% return and Nifty50 has 55% return (because of their extra 20 stocks – that performed very well)
4. The weightage percentage can be changed ? Because it uses underlying stock\’s market value – that generally changes daily
Thanks
1) Market cap is determined by market price. So as the demand goes higher, so would the marketcap. Yes, if the freefloat is low, it becomes easy for operators to manipulate.
2) Check this – https://zerodha.com/varsity/chapter/hedging-futures/
3) No, they would be similar.
4) Yes, as the prices change, so would the weightage.
Hi,
What do you mean by outstanding shares in market and how can we find that out about a particular company?
You can look at the share capital in the balance sheet.
How can i directly invest in nifty.I don\’t see that option on Zerodha Kite.Only futures is there for Nifty
What is market capitalization?
Market Cap = Share price * Number of share.
Free float market capitalization is the product of the total number of shares outstanding in the market and the stock price.
For example, company ABC has 100 shares outstanding in the market, and the stock price is at 50, then the free-float market cap of ABC is 100*50 = Rs.5,000.
What is exactly Outstanding shares in the market ?
Outstanding refers to the shares that are available in the market, with shareholders.
The beauty of these modules are the doubts which arose in one\’s mind while reading these are subsequently answered in the next section. Kudos!
Happy learning, Anirvan 🙂
As I am a beginner, I have doubt about intraday trading.
If a trader have just Rs.1,00,000 as his capital for intraday trading and he has completed the trade using that 1,00,000 capital on T day (1st May), and the settlement will be done on T+1 day (2nd May) after market hours.
So can\’t a trader do trading on that T+1 day (2nd May) as he don\’t have capital to trade because the settlement will be after 2nd May market hours.
Will he sit idle on 2nd May.
The moment you square off the position, the margins will be released for you to take up the trade.
Hello, i need a website just like this but US version, it would be a great help if you could recommend some.
Ah, not sure about that Satar.
I am reading in 24 but still relevant and more banefit then most of youtubers
These financial concepts are evergreen so they will stay relevant for a long time, Ashwani 🙂
Main stock market se earn karna chahti hu lekin koi experience nahi hai
How to find nifty of each stock
Sorry, not sure what you mean by that. Can you kinldy share more context?
Hi
Is there a dashboard where all the major indices in the world flash on the Zerodha screen? Like S and P, Nikkei, Hang Sang?
Because at the moment I use the Apple notification which is kind of clunky.
Thx
Ankur
Not yet, Ankur.
How to know the changes of market capital of any share at trading time in kite app ?
YOu can check the market cap of the stock on ticker tape, Bimal.
hi sir , sir when will Zerodha provide access to USA stocks like other brokers and when will Zerodha add NCDEX agri trading to its platform , thanks sir .
Not anytime soon, Abhinav.
Hi,
I hope you are doing well. Actually, i want to be a day trader. So, i have to read all the modules or any specific for that specific field?
Doing well, hope likewise. I\’d suggest you this module, module on TA, and maybe futures trading.
As per Investopedia, Free-Float Market Capitalization means Active Shares* multiply by the Share price i.e. to say that it does not not include locked-in shares such as those held by insiders, promoters etc.
locked-in would be those shares which are not tradeable like ESOPs generally have a lock-in period.
Am I right ?
Yeah, basically all shares that are free of any obligations.
Hi Karthik. How does a free float market capitalization method differ from the regular market capitalization method? So when I\’m looking at a company\’s details on a website like moneycontrol and I come across the market cap , is it free float or does it also include the value of the shares of the promoters and insiders ?
Company;s market cap that you see on MC includes the entire sharecapital of the company, not just the free-float.
The article says, \”Free float market capitalization is the product of the total number of shares outstanding in the market and the stock price.\”. Whereas in multiple articles on different platforms, they say that it is a product of Floating shares and the stock price. Which one is correct?
Floating shares = The number of shares outstanding in the market.
Hello sir,
I have invested in niftybees
My doubt is :-
1. How are corporate actions reflected in etfs
2. What happens to de merger ex. Jio finance from reliance will I get the jio finance credited into my account
3. Is nifty 50 returns include all corporate action (dividends)or just stock price increase
All corporate actions are kind of baked into the ETFs, including mergers, and yes, Nifty 50 returns include all these corporate actions. Do check this – https://zerodha.com/varsity/chapter/exchange-traded-funds-etf/
Sir,
This link shared earlier is giving an errormessage. Do we have any other source where we can find the updated weightage of sstockson nifty ?
Regards
Sangeeta, you can check here – https://www.niftyindices.com/
sir, kya weightage k base pr portfolio bana sakte h
There are around 5000 listed companies in stock exchanges then why only around 2000 or less are shown in the business TV channels?
I think they just show Nifty 50. Impossible to show all stocks no 🙂
Hi
Can we download these modules?
Yes, PDFs are available. Youtube videos as well.
Free float market cap = (Outstanding shares-restricted shares) * share price.
Ok.
Total market cap considers the total number of outstanding shares. The free-float market cap considers only those shares that are actually available to the general public for trading.
Outstanding shares include those held by shareholders and company insiders. Floating shares indicate the number of shares actually available for trading.
The following definition mentioned in the chapter is incorrect \”Free float market capitalization is the product of the total number of shares outstanding in the market and the stock price.\”
Free float market cap = Outstanding shares * share price
Outstanding shares = available and listed in the market
RIght?
Noted sir. Got it. So, recent adani fall must\’ve triggered the change in weightage in passive funds before the actual rebalancing date of 31-March.
Thank you.😊
Happy learning Naveen 🙂
Sir,
I understand that the weightage is based on free-float market capitalization method. Based on the daily movement, the free float also changes daily.
So, will the weightage also changes automatically daily or will it be fixed till NSE implements the next rebalancing. Kindly clarify.
Not daily, but once a quarter. Unless there is a significant jump in stock prices.
Can An individual trade in both exchange mediators NSE and BSE at a same time on kite ?
Yes, thats possible.
Can we assume that it is safe to invest in index funds only as they are used for benchmarking in general?
YOu can invest in Index funds, but please give it a lot of time.
Hi,
Noob question, of index is a broad reflection of economy, why is no weightage given to agricultural companies when a considerable % of contribution to the GDP is from agricultural & allied activities.
There is only one company (UPL) which is because of weightage given to chemical sector.
Nicky, that\’s correct; the index broadly reflects the economy. But there is also a selection criterion for these companies based on free-float market capitalization, hence the exclusion.
Hat\’s off to your work.
I have a Question – As if I have had purchase a share of TCS on NSE and now I want to share that same no. of TCS shares on BSE can I do it.
Yes, you can buy on NSE, and sell on BSE.
Hii
what does booking the profits mean and how is the index points decided
Booking profits means you close a profitable position and take home the profits.
sir free float means shares owned by public ,right ?
Yes, shares that are available in the market.
sir
1. how can a company be listed on 2 exchanges. Dosent it double its market capitalisation.
2. what is the purpose and advantages of being in both exchanges
3. And also if i buy 10 shares of abc.ltd on one exchange can somebody else buy the 10 shares from me at the other exchange
1) You can\’t add up the market cap across two exchanges.
2) You get access to a wider variety of clients and hence distribute your risk across many different investors
3) You can buy on one exchange and sell on another.
New stock market
You\’ve come to the right place to learn 🙂
1. How is registering for an IPO diverges risk from the promoter, he is going to hold same no. of shares and even though overall risk is divided between large no.of people but still risk possesed by promoter is unchanged??
2. Does LM act as an intermediary by underwriting shares i.e does he buy the shares and then resell it to public??
And if he does, can he make profit in this transaction???
1) From a promoter\’s perspective, instead of 1 large PE or VC, it will be 100s of smaller investors. In that way, risk is diversified.
2) Thats a possibility, yes, they do it intending to profit.
Very nice 😊 appreciate ☺️
Sure, happy learning 🙂
As per your suggestion .,
I have made a calculation for Reilance Industries Ltd as on 16-08-2022.
Reliance Stock Closing Price – 2651.30 – 18.30 pts – 0.7%
Weightage as per July (Monthly Report Obtained From NSE) – 11.51%
Stock Moves – 0.7%
So, the contribution points should be = (Weightage * stock moves)= 11.51%*0.7% = 8.057 pts. for Nifty 50.,
But the contribution points for Reliance Industries Ltd =11.97 pts for Nifty 50 (Source: Moneycontrol.).
Can you please explain the difference ., where the calculation went wrong.
Krishna, I\’m not sure about the exact math. What I shared is the rough direction in which this can be calculated. You will get the exact math only from the index creator – https://www.niftyindices.com/
Sir.,
I tried to calculate with weightage but I am not able to get the correct answer. Can you please expalin for atleast any one of the Nifty 50 stock contribution for index in Excel sheet to my mail Id.It will be highly helpful.
I am an existing user of Zerodha!! and I am extremely happy that your putting your efforts to explain things in a simple manner.
Lets say only 2 stocks are contributing 50% to the index. One stock moves 10% up and the other stock does 0%. Overall effect on index = 50%*10% + 50%*0% = 5%. SO in the some way you can do this for the entire index with all its constituents.
Sir.,
How to calculate the individual stocks contribution points to the index manually ??Can you please suggest a formula behind it.
That depends on the weightage, Krishna. The easiest way is to normalize the index to 100% and match the contributions. Requires a bit of excel work to set that up.
I understand that a company may be listed both in BSE and NSE.
Then which stock price one can take to compute the company\’s valuation?
Will the valuation be multifold depending on different exchanges a company is getting listed?
You can consider either. The difference won\’t be much or non-existent.
Excellent & informative.
Excellently designed material. Thank you.
Happy learning!
Hi Sir,
Reading Varsity for some time and enjoying the content very much , its very simplified and well organised… Just a thought, there can be a quiz option after every module or chapter, whatever suits the development team…it help me the reader to revise and gauge his retention of the newly acquired knowledge.
Hey Kapil, please do download the app, we have quiz options there. Plus do keep an eye on our social media post t\’row 🙂
How to update sector of a stock? For example, happiest minds is categorised as others which is wrong. It should be it.
Same for mapmyindia.
Either update or let me know how can i update?
Ah, I\’m not sure if you can update this. Let me check on this Koushik.
Hi Karthik,
Is future trading of stocks need to be backed up by exact number of stocks or as future trading can be done without any relation with numbers of underlying stocks,means if underlying stock price is 100 and people decide to buy and sell at 200 equilibrium in future ,that will be the future price of that particular stock?
Thank you for the content.
Harpal, the exact number of stocks/lots does not really matter.
Sir, where can i find the weightage of all stocks for all NSE indices? The Nifty Indices factsheet only provide Top 10 weightage of stocks?
Rajdeep, you will have to do some digging around here – https://www.niftyindices.com/
Respected Sir,
I, Palash Sarkar have a question that, how can I find a stock is either small cap. Mid cap or large cap. from BSE or NSE website?
Thanking you,
Palash Sarkar
You will have to look at the market cap of the stock and then decide, Palash.
Why i am not able to open equity account in NSE , the BSE is enable, but when i enable BSE , it says that i need to submit my income proof , I am more then willing to submit my salary slip but there is no option to upload it. please help
Have shared your email id with the team, Amit.
Got it Karthik. Thanks.
Good luck, Sachin.
Okay. So OUTSTANDING shares = total issued shares by the company (This includes shares held by public, promoters and insiders)
FREE FLOAT SHARES = total issued shares or outstanding shares – Shares which do not have permission to be transacted (Which means they are not readily available for trading)
RIGHT?
Thanks.
Free float is what\’s available with all to trade, Sachin. These are shares held by you and me.
Hi ,
I am unable to understand \’Outstanding shares\’. I checked many sites for the meaning and also the Youtube videos but what they say is \’The total number of shares available for trading\’.
If the traded volume is 100000 for a day that means the shares available for trading for that particular day is 100000. So is it that 100000 is the total outstanding shares for that day ? Does it keep changing on day to day basis ? Am I correct or wrong ?
Total outstanding shares = Number of shares that\’s outstanding in the market. For example, assume there are 10K shares in all, held by different traders. Now, assume 1000 shares exchange hand on a trading day, that means the volume traded is 1000 for the day. Volume traded, is always a subset of the outstanding shares.
Good chapter once again
Thank you sit
Happy learning!
What is the difference between NIFTY & SGXNIFTY?
Nifty is the index, listed on NSE, Mumbai. SGXNifty is Nifty, which is listed on Singapore stock exchange.
Hi, thanks for the blog, it is really helpful.
Question- if I buy a stock in one index does it influence the price of the same stick on the other index too?
Thanks!
It will have an impact on the index it is a part of.
Hi sir,
I see that the same stocks are listed in both NSE and BSE but with a slight variation in the price, what if someone buys a XYZ stock at a lower price in BSE and sells at higher price in NSE.
No problem, you can do that 🙂
How often the weight is change
As and when the prices of the stocks change.
Is there any difference to trade in BSE or NSE? Does it have any effect calculating the returns?
Nope, no difference.
Got it. Thanks sir
Good luck, Ravi!
Sir as we all know that the price fluctuations or the movement of stocks under index effect the movement of the index ..so if some high market cap stock is breaking level its effect will be seen on nifty but why is it so that the nifty movement also effects rest of the stocks …as u told that stocks movement creates nifty to move then why nifty movement also influence rest of the stocks? I hope u understood my query
Because they are all connected, Ravi. Index movement impacts the mood in the market and people tend to buy stocks.
Why do we have so many other exchanges in India e.g Calcutta Stock Exchange, Madras Stock Exchange and so.. Which companies are listed there?
Also, are BSE and NSE \’companies\’? Can anybody form a Stock Exchange like NSE, BSE if permitted by SEBI?
None of them are functional. Its only NSE and BSE. Yes, these are private companies regulated by SEBI.
Oh ok…what we can conclude no one will let go of any opportunity anywhere and even we have to inculcate when we enter into the market…
Really Hats off and thank you very much for your efforts for these many long years to create and maintain this content…
And the greatest part of it is your intent to answer every question right from 2014 to 2021… No words and I really mean it….
Because of people like you, hope there will be no more financial illiteracy… (at least stock market illiteracy)
One small suggestion I want to add is to provide an upvote feature for all the good questions… I literally went through all the questions in this q&a till now for all the topics… If you provide upvotes, there will also be a good chance of removing important duplicate queries…
Thanks for the kind words, Sethu. Yes, will try and add the upvote feature to comments. That should help, will discuss with the team.
If on a particular day for a stock, everyone is interested to buy and sell only in NSE but not BSE.(just for assumption) will the price change take place only in NSE or does it have any impact on BSE?
How are both exchanges are having almost the same price all the time?
For example, IDEA stock, if everyone wants to buy only in NSE, due to more buying pressure let\’s assume it went up to 9.2 but no one is trading in BSE.. will it remain the same as 8.52?
Setu, this is not an uncommon situation. However, whenever there is a price difference, there is an arbitrage opportunity and traders trade this opportunity leading to the price correcting itself.
I have a small doubt regarding outstanding shares… Will there be any shares that were not held by any retailer.. I mean, till this chapter, we have learnt that in IPO some X number of the share will be released… do all the X number of shares will have the owner from day 1?
Yeah, it does Sethu.
Thank you
Hello,
What do you mean by Outstanding stocks ?
The shares which are in market and held by the public.
Sir, how are the number of companies to be listed on an index decided? only market cap ?
Yes, top 50 companies by market cap.
Hi, first of all thanks for the valuable information in varsity
i have few doubts though….
all the companies present in BSE are not present in NSE…like BSE has more listed companies in stock market, i dont understand why is that so…why doesn\’t a company get itself listed in both BSE and NSE…are there certain terms that the company doesn\’t qualify to be a part of NSE?
BSE is a much older exchange. SO a lot of companies just listed on BSE, NSE is only from mid-90s.
Hi, where the does the money generating from index trading go initially. ? Like for an individual company through IPO it gets the money, do we have any IPOs for indices as well.?
Not really, there is no money raise with the index.
I have taken zerodha recently.earlier i had religare.I religare there is a way that i can see all company stocks performance in a perticular index.example if i press heading bank nifty index i get to see list of all major banks with current performance,which is lacking in zerodha.It shows index as a whole without listing of all banks performance.Do you have any way to check that in zerodha?
This is on the list of things to do, Shiv. Hopefully soon.
How is the Index value calculated?
Based on the daily price change of the underlying constituents of the index.
Is there a way to pull market capitalization of all NSE stocks?
You can get that on screener or Tijori Finance.
Why is trading sector indices like CNXIT, CNXAUTO, etc not possible?
Contracts arent available on these yet, the exchanges have to figure this out.
Can a Indian company get listed on foreign stock exchange? If yes then can there be difference in the price on these two exchange?
Yes, and Yes.
how can i will get knowledge of share market
how can i get the knowledge of stock market
Please do read up on all the chapters here 🙂
Why SENSEX is More in Focus Compared to NIFTY50?
i mean whenever major news came into market, News Channels say, SENSEX Drop/Up as many %
due to US eletion SENSEX beats past Records etc
Sensex has been around for many more years compared to Nifty, hence Sensex has wider recognition.
When add foriegn Stocks,just like: cocaCola,apple,tesla,fb
Not anytime soon, Naveen.
Q1. how free floated market cap figures get converted into weightage (%)?
Q2. if ITC has the highest weightage, does that mean ITC has the highest no. of outstanding shares in the market to trade?
please help me explaining this term
is it a negative way if it is at the highest ?
Hi,
Why are there more companies -5000 in the BSE and only 2000 in NSE ? Is BSE better than NSE ? How does one decide which index to trade in ?
BSE is a much older exchange compared to NSE.
Does angle investor or VC\’share or promote\’share included in outstanding share? or Only issued share to the public through IPO is counted as outstanding share?
Yes, it is included.
hey i had an ad
Although it\’s difficult to outperform the market and simple to underperform it, instead of buying index funds (which I\’m not sure from where, and from which company; I\’m now only looking at mere stocks, can you help?), can\’t we outperform the market thorough \’put\’ options and other things of that sort? (I have understood a bit about how to make returns through premiums in options; will refine it when I get to that section.) It\’s possible to make 12% in less than 2 months, considering everything goes well. What do you think?
Its a hard question 🙂
Technically yes, it is possible to outperform. But its really not easy 🙂 12% is 2 months is a dream. Yes, you can make it once in a way but to make 12% consistently in every 2 months will take you close to god mode in the stock market 🙂
I just want to thank you Karthik. I\’ve always wanted to learn more about indices, and I\’ve understood it perfectly here. Thank you for taking out the time to write these wonderful lessons. I\’m grateful.
Thanks for the kind words, Vivek! Happy to note that the module is helping 🙂
Hello,
Few queries-
1. Suppose as per above chart, DLF is the 50th company for Nifty, and let\’s say ABC is a new company which met all the criteria eligible for Nifty and has more free float market cap than DLF. In that case DLF will be replaced by ABC? If no, why?
2. As per above question from Kalpana, regarding division of shares to NSE and BSE, were you able to get the answer?
3. As per you, which is best exchange, NSE or BSE? and why?
1) Yes, that\’s right
2) Sorry, which division are we talking about here? I\’ve lost the context
3) For Eq trading, depends on where the price is better. For F&O, its NSE 🙂
Sir,
When company decides to go for IPO, it has to fulfill the condition of Index.
My question is,
1) Does the company needs to fulfill the criteria of BSE & NSE seperately to be listed on both?
2) The number of shares which the company is giving for IPO should be seperate for both BSE & NSE. Suppose ABC Company is giving
100000 shares for IPO on NSE & 80000 shares on bse for IPO?
Is it like that or something else?
1) Yes. You can actually look at the listing criteria mentioned on both the exchanges, its available on the website
2) I\’m really not sure about this. Have to check this myself 🙂
sir you mentioned ITC has cigarettes industry…but ITC is famous for fmcg product ?
Yes Amar, they have a portfolio of investments.
can u please tell when will new user registration begin?
User registration for what, Nishita?
How does one convert the free-float market capitalization into market weightage percentage?
Sorry, I didn\’t get your query. Can you add more context?
Also, the weightage is decided based on the no. of outstanding shares. so does it mean that the company which has more tradeable shares in the market will have more weightage, considering the share price is also high.
Hi Kartik!
I had a doubt regarding the stock price and the share price. stock is the cumulative of the shares and the share is an individual unit. Am I right? So while calculating the free float capitalization we multiply the outstanding shares with stock the stock price. So which price do we actually consider here? share price or the stock price?
Ah no. Both these terms are used interchangeably.
I have recently entered in to stock market trading , Accidentally i see this URL looks very informative , i have one suggestion , Is it possible to include a short Quiz after each module to check the reader understanding ? like the the takeaway ..
Anyway your articleblog is worth reading ..
Rajesh, do download the Varsity App. We have included the quiz in the app.
Makes interesting reading. The Q and A part is enlightening.
Happy reading!
Where can I find the list on companies Zerodha supports in trading for long term
That is basically every company listed on both NSE and BSE 🙂
What do you mean by Shares that are outstanding?
The shares that are outstanding in the market, that\’s what I mean.
[…] 7. The Stock Markets Index […]
Hi Karthik,
I wanted to ask that since index depends upon the free float market capitalization , which fluctuates daily because of share price, so does this mean that everyday weightage also changes? I learnt that nifty is reviewed atleast twice a year, but is the weightage daily updated (if it changes daily).
It changes, but not too drastically.
I\’ll be back when i become big.
Please do 🙂
Hello Sir,
From last few days I have closely monitored NIFTY and DOW. It can be easily seen that NIFTY is blindly following DOW. I think in current situation the economy condition is not such that 10% increase in a single week is possible. I think, one who is going to loose her job, at least will not go out to purchase a maruti. But still automobile sector is doing good. These all gives a feeling that investing in current situation is just like building a house of cards. Please share your view in this regard and kindly in detail. Sir, one more request please explain or suggest a book on trading in recession.
Markets are forward-looking, Bivash. So it anticipates the economic situation going forward and reacts to it today. Trading is the same, recession or not, does not matter.
Hi Kartik,
First of all thank you for providing an opportunity for all of us to learn. I have two questions
1. The stock price of each particular stock is different in both the exchanges. I want to understand the reason why is it not possible to make clear profits by buying from one index and selling on the other? Is it because of the taxes and other transaction cost?
2. Can we buy from one index and sell on another?
1) You can, but most often the difference does not last long
2) Not sure what you mean by this.
Hi sir, took this screen shot of NIFTY Index (https://imgur.com/a/y0dk17e) today night, why do both value differs? Aren\’t both are the closing price?
Similarly all the equity closing value also differs in chart (https://imgur.com/a/YhDuwrX), why it is so?
Thanks!
Ah, you must be seeing the last traded price. EOD, upon expiry both values converge.
How much does BSE pay S&P every year as licencing fees?
No idea 🙂
However, BSE is a listed company. You should get this info in their annual report.
Hi,
I can buy shares on via KITE terminal & similarly i have bought some mutual funds on COIN platform of Zerodha. I want to know that how to buy Index funds or ETFs using Zerodha? Even i am not able to search ETFs or Index fund neither on KITE terminal nor on COIN terminal.
The Index ETFs are exchange-listed, so you will have to look for it on Kite. Index funds is a mutual fund, so you\’ll have to look for it in Coin.
Shares outstanding are all the shares of a corporation or financial asset that have been authorized, issued and purchased by investors and are held by them. The person who holds the shares has rights and represents ownership in the corporation
Yes, thats right.
Thanks you so much. With these article it is very easy to understand stock market
Happy learning, Kunal!
what are points of BSE or NSE signify? Are these the ones called index?
what actually the index points to in stock market?
Anmol, have explained the same in the chapter 🙂
Can I directly invest in SENSEX or NIFTY 50 ?
You can invest via Index ETFs. Check this for Nifty ETFs – https://zerodha.com/nifty-etf
Sir,
For checking weightage i usually follow Economic times. There are many brokers who gives weightage of index stocks but i found differences in each of them.
Is it possible that zerodha will provide real time index weightage for their customer???
Like Nifty, Sensex, BankNIfty NiftyIT etc
It is quite helpful for trader, and we will get this information quickly while trading without going anywhere else.
Thanks
Rakesh, the weight of the stock constituents on the index?
Thanks you sir,
Please answer my second question does profit booking by large number of participants leads to sudden fall in index such as nifty and bank nifty.
Thanks
This is true when a large number of traders have built long positions and have decided to unwind their position.
Sir
What\’s profit booking and why the indices such as Nifty and Bank nifty fall dramatically (within seconds to a minute) during profit booking.
Thanks
Profit booking is a term used to indicate that the traders are closing their position to book some profits. For example, if a trader is long and wants to book profit, then he has to sell his position. Likewise, if a trader is short and wants to book a profit, then he has to buy the position back.
Dear Sir,
I am bit confused about these so called market index such as nifty 50 and banknifty.
My understanding is they are kind of derivates of underlying stock prices. So whenever there is change in spot price of stock these index should change but what I a failed to understand is sometimes within span of an hour they vary about 100 points, eg nifty from 11500 to 11600. Though there is no major events happening in that 1 hour so as to alter the stock prices of 50 companies that constitute nifty 50 dramatically. It seems to me that Rather than equity prices driving nifty price it\’s other way round nifty drives equity price by fluctuating dramatically 100 points in a span of an hour thought nothing much changed in that time period that affected systemic or non systemic risks in that time period. This happens more so in the beginning or at the end of the market timings most of the days. Though the volatility and volume of buyers sellers may play a role here, but still I am lost to understand this wild swing in index. Because of this all the technical analysis and fundamental analysis you apply goes into drains.
I would be grateful to you if you could explain about intraday wild swings in nifty and banknifty without any strong reason.
Thanks
Kumar, take Nifty for example – there are 50 individual companies that make up for the Nifty 50 index. Now, not all these companies have equal weightage to the indices. In fact, you can check the individual weights here – https://www.niftyindices.com/.
Each of these stocks trades on a regular basis, and the movement in each of these stocks have an impact on the index, hence as a result, the index too moves.
Hi Karthik! I recently started learning about investing and stock markets in general from zerodha varisty and it\’s been good so far. I just have a suggestion (or maybe a request), can we give short quiz/tests through the website instead of app? I\’ve been learning from the website but couldn\’t give the test there. Please look into this if possible. Thanks 🙂
Nitesh, thanks and I\’m glad you are learning from it 🙂
For now the quiz and test is a core feature of the app. Will try and see if we can have the same thing for the web. Thanks for the suggestion.
Is it possible to get the weightage constituency of all stocks listed in NIFTY 100 INDEX ?
Yes, Reshma. Check this – https://www.niftyindices.com/indices/equity/broad-based-indices/nifty-100
Sir..You have strengthened my financial knowledge to some extent..
My doubt is in MCX on what basis the number of contracts are assigned and who governs it.Is MCX governed by any ministry ,if yes then it comes under which ministry?
Yes, the commodities market and MCX is regulated by Forward Market Commission of India – http://fmc.gov.in/
Hi Karthik,
I must say that this content that Zerodha has provided here is really the best. Fortunately, the day I thought that I need to learn more about the market, I came across this portal over Medium by TradeBrains founder. The simple and easily understandable language that is used to teach is excellent.
We can see the commitment of Varsity by noticing that the comments section expands/covers far greater space than the content itself. Zerodha is really justifying the saying the we learn by asking questions and we need to ask more.
In coming days, I am going to ask lots and lots of them.
Once again, thanks for educating us about our economy.
-Aakash Singh
Welcome aboard, Aakash! Hope you find learning on Zerodha Varsity fun and enriching. Feel free to ask all your questions, hopefully, we all get to learn a thing or two 🙂
how can we buy bank nifty index so that I can make a covered call write on bank nifty . Currently I do not see but and sell option on for bank nifty as I see for stocks .
Covered call in indices is a bit tricky as the underlying itself is an index. At best, you can buy futures and sell call options.
Suppose I am holding future of TCS and on expiry take delivery then I will get 1000 TCS stocks. In the same way if I take delivery of nifty then what will I get ?
what are these nse 50 or nse 100 (etc.) indices and their differences?
These are just different indices, Soubhik.
Excellent work karthik and zerodha team, content is cool and equally comments section as well, loads of information.
After IPO, when ABC company hits secondary market, say there are 100 shares to hit the secondary market, will it be like 50 in NSE and 50 shares in BSE?
Glad you liked the content 🙂
That really depends on how many exchanges they want to list in.
Sir,
Does index trading means buying a collection of stock from indices such as Bank Nifty and CNX IT?
The index itself is a collection of stocks, so when you buy the trade the index you are essentially buying or selling the entire set of stocks in 1 go. This is referred to as \’Index trading\’.
Thank you. The information provided by you is simple and easy to learn.
Glad you liked the content 🙂
Hi Karthik,
You are an ocean in the knowledge now I need one cup of yours.
How to evaluate a share price is overvalued or undervalued with the current market. Or to calculate the fair market value of shares.
I have gone through different formulas and methods but still not get clear.
Naveen, those are big words 🙂
Everything about valuations/fair price etc is discussed in detail here – https://zerodha.com/varsity/module/fundamental-analysis/
Hi Karthik
It might be dumb question but it is a question after all.
What is the basic difference between NSE and BSE what was the purpose of creating two different stock exchange.
The regulators never wanted to give a monopoly to one single exchange. Essentially these are two different exchanges which offer similar products. Think about it Big Bazaar and DMART, same groceries, different experience.
Thank you Karthik..
Welcome!
Can I get this downloaded in pdf form for offline reading?! I mean, chrome is not the better place for long reading, I say.
Yes, you can. The link to download is available at the end of the chapter.
Hi sir,
Please let me know where can we find the updated list where in how much weight is given to which stock and also how often are these stocks replaced
You can find that here, Brain – http://www.niftyindices.com/
how the values of sensex and nifty 50 are calculated.?
It is market driven, depends on how the stock making up the indices move on a daily basis.
suppose market is at 35000 (sensex)
how do we come to this number?
The index is formed by a set of underlying shares, when the shares trade in the market, the value changes, which in turn affects the index such as Sensex.
Thank You Sir.
I loved your site and your explanation style.
Thanks for the kind words, Siddhant. Happy learning.
Sir, is Index funds are monthly investments or one time investment
You can choose to do a SIP in the index fund or a lump sum. It is really up to you and your investment requirement.
Dear Sir,
Greetings from a vivid appreciator.
I work in Sales at a Public company and I have insights in the Sales graph and revenue of it before it is made public.
Can I trade in the shares of the company? Does it qualify for inside trading?
Aayush, there are two things here –
1) This is insider information. Trading based on insider information is illegal.
2) Your company will also have prohibitions on trading, so you will be violating the company\’s trading policy.
I\’d suggest you refrain.
Hi Sir,
These contents are very much informative.
Can I use them on my YouTube channel videos ?
I will use them for educational purpose only.
You and Zerodha will be given proper credits.
Hoping for optimistic response.
Sure, Arun. Thanks.
Sir,
How can I buy INDEX for long term?
There are a couple of options, Subbha
1) You can buy the Index ETF, look for Reliance ETF Nifty bees – https://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=NIFTYBEES&illiquid=0&smeFlag=0&itpFlag=0
2) You can buy an Index Fund – https://coin.zerodha.com/funds/14058076.00206600/reliance-index-fund-nifty-plan-direct-plan
I\’d prefer the ETF.
Sir, is share outstanding or outstanding share same?
Yes, they are the same.
Sir – Basic Question..
Why do we have two different exchanges BSE & NSE why can\’t we just have one ?
That will lead to monopoly of a single exchange 🙂
Is it harmful in this case ? As far as i\’m aware stock exchanges are not like other business but is governed by govt right..
Competition is good, right, always good for the end client 🙂
Reasonable bias is ok but it matters when bias goes beyond just and fair levels.Regulators may insist on a disclaimer clause for more transparency that bench mark index may not reflect a true barometer of the country\’stock market which exchanges insist it is .Retail investors are made to believe to to a false impression that individual underlying stocks has a correlation with the benchmark indices which on perusal is not.
Maybe you should write to Moneylife and let them know your point of view 🙂
Dear Karthik,
Had discussed at length with the index construction team from the contact number you provided.They were asserting the construction is legitimate and ok but I don\’t find it logical or equitable at all.Just peruse the shareholding pattern of Nifty50 stocks its market cap, its free float its weightage and looking into the CAGR of individual scrips since moving to free float and correlate all to understand it to yourself.I find the benchmark index not even barometer the stock market as a whole, forget about the economy.Just my view.
I do get your point, Najeeb. But here is the thing – whichever way you build the index, there is always a certain amount of bias. How do you account for that?
Ftse a total return index seems more a robust construction with 101 constituents and I fully second your view.But my apprehension is how can promoter share be shown as zero to project a 100 percent freefloat ridiculing and belittling our country\’s soverign holdings in the construction using the loopholes on construction methodology .Just peruse the CAGR from the date of shift to total freefloat of Nifty 50 stocks which includes the majority stateheld inclusions too.How the promoter and promoter group is structured and the insitutional and the non institutional public share holding is structured through QFIS.Throws a lot of insights to think about.Could you please let know the legality of this.
If this is true, then I\’m quite surprised too, Najeeb. Maybe you should get in touch with them to hear their rational – http://www.niftyindices.com/contact-us
Dear Karthik,
On a telescopic view of the global markets it shows Dow 30 follows a price weighted divisor method index and S&P 500 a 505 bunch of free float market capitalization index,And India\”s Sensex 30 and Nifty 50 shifting to free float with out moving to broad numbered indexation as in S&P with 505 scrips.On a microscopic view of Indian barometer indices, Sensex and Nifty , promoter share of the State owned entities in the name of the President of India have a very less free float and many of the big boys have zero or very less promoter share and showed as public free float with majority QFI share for showing more weight age.So free float indexation, is it a true and equitable construction of economy or even of the stock market as a whole?Or a jugglery of numbers.
Its certainly not equitable but I think it is better than price-weighted. Ideally, it should be a fundamentally weighted index considering margins and CAGR of key metrics. Also, do take a look at this – http://www.ftse.com/products/downloads/FTSE_EDHEC_Risk_Efficient_Index_Series.pdf?32
good morning sir…
I am geting salary 40000 my MF investment is 12000.and i have done my insurance also..now i have opened zerodha demat…monthly how muchi should invest…like SIP or lumpsome investment i should choose.
Shishir, its best you speak to a financial consultant for this. I won\’t be able to advise you on this.
Dear Karthik,
How much do you think the price weighted method of index construction using divisor and market weighted method of index construction by free-float, barometer the economy? Seems pseudo scientific and marketing the index gimmick.?on going deep into index constructions.
Well, to be honest, I\’ve not given it a thought 🙂
But I think I like the market cap approach, this is assuming you place faith in Market\’s price discovery mechanism.
Hi, I am not able to find NIFTY BANK, NIFTY PVT BANK & NIFTY IT Sectoral Indices in my Kite. Any one know how to add them in my watch list?
Use the key word \’Index\’, when you search for an index. For example, \’Nifty Index\’, when you are looking for Nifty Spot.
by \”Free float market capitalization is the product of total number of shares outstanding in the market, and the price of the stock\”..is it the stocks available in the secondary market for buying and selling by the public or includes all the shares that are held by the Promoters, angel investors, VC\’s & PE\’s.??
Yes, it includes the shares that were tendered during the IPO and held by the public (including corporate bodies).
PLEASE POST LATEST WEIGHTAGE OF NIFTY 50 INDEX.
Please check here – https://www.nseindia.com/products/content/equities/indices/indices.htm
Can one invest in industry specific indices?
Yes, you can choose to invest in a sector-focused fund like this one – https://coin.zerodha.com/funds/140513403.00206600/tata-india-pharma-healthcare-fund-direct-plan , although I think one is better off investing in a well-diversified MF as opposed to a sectoral fund.
Sir,
how to invest index funds
Have you checked the direct MF platform from Zerodha called Coin – https://coin.zerodha.com/
I bought a stock in NSE for long term. after some period can i sell that stock in BSE?
Yes, you can.
Hi , first all of thanks for Varsity as it simplify the concept of stock
My question is as in previous chapter market is based on fundamentals and news
so if we selecting some key company from particular sector and based on which we evaluate the performance (traffic) of all company in that sector. what if selected company has positive aspect so its growing and other one in same sector is surrounded with negative aspect. how will we evaluate
If the overall industry is not doing well, but if this specific company is doing good then it implies two things –
1) The company must be doing something drastically different/disruptive compared to its peers – if true, you should not hesitate to invest in such companies
2) Maybe the company is tinkering their books – need to be very careful while evaluating.
In free float market capitalization , market capitalization= no of shares outstanding × stock price.
Here the stock price means the market price or face value..??
It refers to the market price of the share.
Thanks Faisal…
but don\’t mind Faisal… Karthik sir can u please confirm this to me…
Thanks for the free and valuable knowledge sir… I have one quirey, for eg if I buy the share of xyz company through NSE for position trade can I sell those stock after few days in BSE? or if the answer is no than if buy mistake while placing sell order if I select bse instead of nse what would be the consequences?
Yes, you can buy from one exchange and sell it another exchange once the shares have been credited to your Demat Account, which is after T+2 Days.
You will not be able to do this for Intraday or BTST trades
A big Thank u sir, for giving a wonderful explanation about the stock exchange and sensex or nifty. i got it in a very handy way. now my question is how a VC valuates a company or startup nd invest money in them by getting some share ? can u help me plz ?
Check this – https://www.youtube.com/watch?v=32waPupaXGg&list=PLkxTRam6E2V_Kq5l-H4Xihh-nWgO6Z4d9&index=29
Great article.
1 query – Now we see Infosys is listed in both BSE and NSE. Why is the price different in both. For instance at close of markets today, the share price of Infy in NSE is 991.15 whereas in BSE its 991.40.
Small variations are common, Anuraag.
How to find stocks that gap in the pre-market period on screener.smallcase?
You will have to check with Smallcase for that – http://help.smallcase.com/screener-help
Sir even after spending few months on NSE website, I find it very hard to find information I need, from the website, like option data for last 6 months, time decay on daily basis and so on. Do you think there is any material to address this problem? Have you ever faced this problem or is it just me?
Well, the only information you get on NSE is OHLC of options, volumes, OI, and implied volatility. Everything else has to be derived from the B&S calculator – https://zerodha.com/tools/black-scholes/
After investing in Index. will it give all features like normal shares e.g. dividend, bouns for whichever company listed in Index.?
No, this won\’t happen – you will not receive any corporate action benefits.
The difference between the voting right share and non voting right share
Voting share gives you the right to vote in case of company related issue. A non-voting share does not.
what is the transaction charges for trading index
All charges explained here – https://zerodha.com/charges
sir,
thank you for this content,its very straight-forward.may god bless you!
Thanks for the kind words 🙂
how can i found low float stock …??????
You will have to scan the market for this.
How can i find the weightage of a company in nse, bse website?
Check this – https://www.nseindia.com/products/content/equities/indices/indices.htm
Superb initiative to spread financial literacy in India.. your content is so good and easy to understand for everyone. I am from business management & MBA background but still this varsity thought me a lot compared to traditional MBA.
Happy to note that, Aradhya 🙂
Good luck and happy learning!
Why index has more weightage to banking stocks??
Indices are based on free float market cap – so whichever companies fall under this methodology, they get included in the index.
awsum page
Beautifully Written and Well Explained..
Cheers!
Can you explain what does trading index mean? In the next chapter there is a reference to buying index, how does that work?
You can do that via Futures and options, wherein you can buy Nifty futures. Check this module for more details – http://zerodha.com/varsity/module/futures-trading/
Thank you 🙂
Welcome!
\” Usually the objective of market participants is to outperform the Index\”
Isn\’t the assumption here that you are trading in the selected or top 50 companies because they only decide the index, which is flawed?Won\’t outperforming the index be of no relevance if the stocks you are trading in isn\’t of the selected companies which essentially have no bearing on the index and hence gauging your performance according to the index be flawed?
You are free to use any benchmark you wish. For example I personally like to benchmark myself against the Juniorbees, as my portfolio is mainly small and mid cap stocks.
You are superb!!! A lay man can also understand market after reading content of your website.
Thanks
Happy to know that, thanks Kalim 🙂
Happy learning!
How one can trade index?
What is derivative Index derivative
Yes, you can. You can trade by transacting in a index derivative. Read module 4 to understand this better.
1)How does sensex differ from nifty?
2)Is index prepared on the basis of diffrent sectors?
3)what is bank nifty and how it differ from nifty 50?
4)what is sensex points and nifty points?
1) Sensex is from BSE, Nifty from NSE
2) Based on free float market capitalisation
3) They are two different indices
4) Points quantify to what extent the indices moves for a given timeframe.
Read the chapter fully.
Does the weightage to Nifty for a particular company remains fixed or it can be changed in some conditions?
It changes based on the market capitalization of the company.
Hi Karthik,
Thanks for the Zerodha Varsity. It is remarcable that how you explained everything in a very simplified manner.
How promotor\’s share holding is zero in a compony like ITC. What does that indicate?
Regards
Vinod
Thanks Vinod. Not sure about the ITC share holding pattern..but in case the promoter\’s holding is low, then the company is run by a board.
Thank you Karthik
Welcome!
It won\’t consider the face value of the stock to calculate the Market Cap?
MC = Number of shares * Price.
Not understood the concept of free float market capitalization. In moneycontrol app it is given that market cap. of DLF Ltd. is 22,344.52 Cr and that of IOC is 169,155.45. In spite of larger market cap. IOC is not included in NIFTY 50 whereas DLF is included. Why???
Market Cap is defined as the total number of shares outstanding multiplied by share price. Free float Market Cap is defined as the number of free shares available in the market multiplied by share price.
In the article above, it\’s written \”Free float market capitalization is the product of total number of shares outstanding in the market, and the price of the stock.\”
Yup, that\’s right.
Hi Karthik,
One more question I didn\’t get what\’s the difference between Indexes & Indices ? Please explain.
Also I am checking Indian Indices on money control no where I am seeing CNX IT , CNX I00 & CNX 500. Is it that CNX IT is other name of NIFTY IT , NIFTY 100 & NIFTY 500 ?
Indices is just a plural form for Index 🙂
Check this – http://www.moneycontrol.com/terminal/index_v1.php?index=9
Hi Karthik,
You mean indices/indexes are nothing but dashboards ?
Dashboards? Not sure what you mean by this.
I mean to say does Indices/Indexes are MIS for respective stocks ?
No 🙂
Hi Karthik, doubt not related to this chapter.
SLBS: just dial LTP =4.00
UNDERLYING LTP=433.50
FUTURES LTP= 429.20
ANNUALISED YIELD=9.91%
now my doubt is what is LTP=4.00 and how they arrive at 9.91% p.a???? please clear my doubt sir
Thanks&Regards
When you lend the underlying in spot market under the SLBM scheme you do get an interest. 9.91% is annualized, really not sure how the calculate this.
Hi Karthik
I would like to know whether rise and fall of Nifty is mathematically equal to rise and fall of 50 companies in Nifty? Or does Nifty have its own sentiments separate from the companies it comprises of?
Say for the sake of simplicity, all companies in Nifty have equal Market capitalization and they all raise by exactly 1%, so can it be possible that Nifty may rise to figure other than 1% also?
Also does Global news affect Nifty directly or is it through the companies listed in Nifty.
Basically I want to know is everything mathematically accurate ?
Yes, Nifty factors in the movement of each stock according to its respective weight age. Yes, if all companies have equal MC, then Nifty will assign equal weightage and movement will be linear….although this does not really happen in real life.
Hi Karthik,
I wanted to know, in kite why can\’t I load indices?
Its available, check this – https://kite.trade/docs/kite/#marketdepth
Sorry I can\’t locate it. Could you help me loading major indices like nifty 50 and sensex. I am unable to open both indices on pi and kite.
Check this – http://support.zerodha.com/kb/faq.php?id=195
Excellent series of articles. I have one question. You have shown the table listing the Nifty 50 index by weight age. Where can I find such list. I tried going through nifty website, but couldn\’t find any such list?
Here you go – https://www.nseindia.com/products/content/equities/indices/nifty_50.htm
There is type in the table mentioning the stock \”Reliance Industry Ltd\” should be \”Reliance Industries Ltd\”.
Thanks, will get that corrected.
Where can I get a summary of the Indian stock market (size, liquidity, restriction, valuation, etc.)
You will have to source this from couple of website, I\’d suggest NSE India for trading information and http://www.ratestar.in/ for fundamental information.
sir i have one doubt / what are the issues in selection a procedure of stocks in nifty fifty index/ please anybody can answer these question pls
There are a set of qualities they look for including trading volume, liquidity, market capitalization etc. NSE has listed down these details on their website.
Hie Karthik sir.
Your systematic explanation of stock market is fascinating . Indeed it should be incorporated in schools and colleges. I believe, financial literacy is must in today\’s time. Thank you for such a great content.
One question: Say, it is 10 in the morning and there is a company \’A\’ whose FFMC does not qualify it to be under top 50 companies of Nifty. However, after doing superbly well in the market, its FFMC exceeds company B\’s FFMC, that is listed under top 50 companies of Nifty, at 1 in the afternoon. So will it replace the company B at that very instant or changes in the Nifty will be reflected after the market gets closed?
Thanks for the kind words Rajat. I do agree financial literacy is extremely important in today\’s time 🙂
The decision to include a company within Nifty 50 is an eloborate process and happens once a quarter by the exchanges. In fact exchange cannot afford to change the index constituents on the go.
This should help – http://www.nseindia.com/products/content/equities/indices/indices.htm
Thank you 🙂
Thanks. I understand about companies decisions. My doubt was with respect to bse and Nse. How much of this stock they get to list in their respective exchanges. Incase of high demand in one exchange does it get fulfilled by the other? I was comparing Google charts of a Tata motors where at a particular time there was a heavy volume traded in both the exchanges however there was a slight difference in price bse being on the higher side by appx 1 rupee
Bopanna, you can buy stock in NSE and sell in BSE or vice versa. Eventually it all depends on liquidity and who offers the better rate.
Hi,
Is there a specific volume ratio for the shares of a company that are being traded in both the exchanges ?
What i mean here when company steps from primary to the secondary market how is it decided how many shares will trade in which exchange ?
In case if there is a shortage in one exchange and if there is a surplus in the other ?
Thanks.
Usually a certain portion of the share capital gets listed on the exchange. In simpler terms – if the total number of shares are 100, then the company can decide to issue 10%, say 10 shares to be listed. This will get traded on exchanges.
hi my question is about premarket buying. suppose nifty index is trading at 7600 today and closes at 7560.Same day suppose there is a bad news after markets close and i anticipate the index to fall drastically . so i decide to short nifty futures or buy a put option.but waiting till tomorrow after markets open seems to be a bad idea to me because the markets would open far less price than todays closing .in this scenario is it a good idea to buy in the after market hours today or premarket tomorrow
In AMO or Pre market you can only place an order but the execution will happen only after the market opens. Check this – http://zerodha.com/z-connect/queries/stock-and-fo-queries/pre-marketpost-marketafter-market-orders
Hi Sir,
I have one query regarding the benefits that one would get by investing on stocks with higher prices. For example, consider TCS shares currently having value around 2330.00. If a person is investing 20K for TCS, he may be getting 9 shares for this price.
I was wondering what benefits could investors have on such stocks. ?
Benefits are of 2 kinds –
1) Capital appreciation meaning if TCS does well as a business then the stock price will also go up…lets say it goes to 2500, then your 20K investment is not valued at 25K.
2) Dividend payout – Companies payout dividends to its shareholders. This is like a rental income on your property. Its not necessary that all companies should pay dividends, but most of them do. So if TCS gives out Rs.10 per share as dividend then you get Rs.90/- as dividends income.
Thanks for your quick clarification.. 🙂
By those benefits, does that mean, the stocks of higher values yield the same as lower ones..?
For example, the same 20K can be used to buy shares of other company say, Rs.50 per share. An increase in Rs.5 per share would yield us a profit of(400*5 ) Rs .2000 which would be the same as the TCS shares would have given us.
Am I right?
Just out of curiosity, what would be the general trend in this case. Would some one be willing to invest in such large share value,
or just go ahead with the latter ones?
By the way, I forogt to mention one thing.. You are awesome.. and your blog contents are simplicity at its peak 🙂
Hi,
I read the lists of companies and their weightage. Please tell me that this weightage is fixed for all the time or it changes on some factors.
Thanks.
With increase/decrease in stock price, the free float market cap of the stock changes and with this the weightage also changes.
great work!!!!!
say a company has 100 stocks and i bought 10 of them. so now i am the owner of 10 % of the company. now my question is— till i hold the stocks will i get the 10% of companies profit?? or my profit or loss depends only on buying and selling the stocks??
Yes, you will be 10% owner. You will get 10% of the profits via dividends. The profit or loss depends on the appreciation of the stock price.
can you explain the dividend part a bit…
as in how we would receive 10% dividend….if we take the above example
Explained here – http://zerodha.com/varsity/chapter/five-corporate-actions-and-its-impact-on-stock-prices/
Hello karthik,
Here you mention that i can buy from one exchange and sell it by another exchange. And it is possible in CNC only and not in future , am i right ?
Right, not possible on futures for technical reasons.
Sorry, I\’ve been quite rude, two questions without saying thank you for the ebook and the time!
Most welcome 🙂
Hi, I would like to ask: isn\’t this the full market capitalization method? Outstanding shares × share price. Isn\’t free float market cap method: outstanding shares (minus locked-in shares held by other corporations… government…) × share price. And another question: there is a page where I can find the free float factor or the exact number of outstanding shares (without locked-in shares) of nifty or bse index?
In fact this is what I\’ve mentioned here – \”Free float market capitalization is the product of total number of shares outstanding in the market, and the price of the stock\”
Free float data is published by NSE, check this – http://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=TCS&illiquid=0&smeFlag=0&itpFlag=0
Free Float data is mentioned above 52 week high.
But where to see the number of outstanding shares?
Available in the annual report of the company.
I wanted to know about the free float market capitalization technique.
You specified it means \”No.of outstanding shares in market X price of the stock\”.
What is meant by the outstanding shares in the market?
Does it mean the shares which are still not owned by anyone and is available in the market?
Or does it mean all the shares that is eligible to be traded in the market (even if it is currently owned by someone)?
Free Float represents the number of shares that are outstanding in the markets – like you said \”does it mean all the shares that is eligible to be traded in the market (even if it is currently owned by someone)?\”….exactly what it means.
price of stock may vary each day….so does that mean….every day the list keeps changing…or they fix the price…
As I said…its based on Free Float Market Cap.
when i place a buy order… will there be any difference whether i make it on nse or bse??
and by the way… u guys are great… i would never have found all this information in such a lucid way anywhere else .. 🙂
Thanks for the kind words Pramod 🙂
Yes, there is a price difference between BSE and NSE although not much.
Sir,
Great Initiative by you, helps a lot for people from non-commercial backgrounds.
Is there any eligibility criteria to get listed in BSE ? What if more that 30 companies are eligible how will the BSE decide which one to choose ?
You must be referring to BSE Sensex index. The exchange has a set of rules based on market cap and free float…if a company qualifies these conditions then the exchange adds it to the index.
Very helpful -thank you Zerodha
Thanks 🙂
was very informative.will soon see company emerging as an Investment bank.Must focus on discount stocks am currently holding Educomp bought @18 RS 1000 Q with 5 Year time frame.Must be a different company who focus on discount stocks rather than one at premium
Good luck with that Ranjit. Glad you liked the content here.
indeed a nice tutorial…. I want to know how do we buy and sell nifty? Are any tutorial already available in z-connect? If yes, where its placed? Please explain little bit briefly between buying and selling the securities between two exchanges BSE and NSE? Like if I bought a security in NSE, but it\’s not listed in BSE, so, can I be allowed to sell it in BSE?
If the stock is listed in only 1 exchange you cant sell it in the other. Will be dedicating a chapter completely on Nifty in the \’Futures module\’.
Sir, you have said that \” make sure you buy back the stocks you sold at BSE bought from NSE\” for mr.Anant query, why it necessary to buy back the stocks?
That is because Anant is referring to a trading strategy called \”Cash and Carry Arbitrage\”, where you sell stocks on one exchange and buy the same on another. We will discuss in one of the future modules.
Mostly we see, the value of a particular stock differs from BSE to NSE. So, Can I buy a stock from NSE and sale the same at BSE ?Thanks
Yes you can. But make sure you buy back the stock that you have sold before 3:20 PM.
Karthik. Why is it like that ? What if I dont buyback the stock before 3:20 ? Can you pls. elaborate further. Thank You.
Sorry for that above posting. You have already answered in the below posting which I didn\’t see earlier. My apologies.
Is there any way I can delete my previous posting ? Thanks again.
Ah, thats alright 🙂
Where do I get updated information on weightage of stocks in the Nifty?
Download the 2nd excel sheet from here http://www.nseindia.com/products/content/equities/indices/cnx_nifty.htm to keep a tab on latest Nifty weight-age
Hello….in the excel…weightage is not mentioned…how do we decide then
Its decided based on the free float market capitalization.
how frequently does the list get updated?
Check this – http://www.nseindia.com/products/content/equities/indices/nifty_50.htm
Hi,
I\’ll check here. http://www.indiainfoline.com/marketstatistics/index-movers/nse/nifty
hi sir,
can we download this modules for offline reading???
Thanks, but this may not be possible for now !
how can i know company\’s ipo has launched? what things we must have to know before investment in ipo? And how can we know?
A general track on business news will keep you posted on new IPO\’s. Alternatively keep a watch here – http://www.nseindia.com/products/content/equities/ipos/homepage_ipo.htm
A summary of the due diligence required before applying for an IPO is discussed here – http://tradingqna.com/1329/investor-determine-investing-company-available-exchanges?show=1329#q1329
How do we know that the stock we buy is listed on bse or nse ???
You basically have the option to select the exchange before you buy the stock.
Hi sir, very excellent initiative by zerodha.
My question is why almost all stocks trade both in NSE and BSE?
They are two different exchanges/markets. There are several companies in BSE that are not listed in NSE.
Why would a company only trade on one indice?
Not true – for example TCS trades on Nifty, CNX IT, CNX 100, and CNX 500.
Sorry you did not get the gist of my question. You had said \”There are several companies in BSE that are not listed in NSE.\” Why would a company choose to be traded on one indice?
Oh I get it now 🙂
The inclusion in the Index is at the discretion of the index owner (exchanges). So BSE has its own methodology based on which they select the index constituents and so does NSE. Hence they differ. However all 30 stocks in Sensex are included in Nifty 50 or just Nifty.
Aren\’t the indices decided on by the credit rating agency and not the BSE or NSE or any other exchange?
Nope, there are separate entities which maintain indices. For example Nifty is maintained by – http://www.nseindia.com/supra_global/content/iisl/about_iisl.htm
Well, relax because your question is not relevant to the trading opportunities for market participants.