err ... what is sensex, nifty ?

even if you want to avoid, you just can't avoid these two magic words. and its OK to not know a sh*t about what it means, how it is calculated, why people lose sleep over it or why these numerous channels telecast them live.

if you are the one who has heard friends, local paanwala, bus conductor utter these words and never probed further thinking you will looked down upon as a dodo or a mamu, here's help.

now if you have got better of your ego, lets demystify some pompous financial jargon.

stock market: in india there are many stock markets. would you believe if i said hyderabad, kolkata, etc. have their own stock markets ? i was surprised to know that as a new kid.

however, globally, the bombay stock exchange (bse) and national stock exchange (nse, delhi) are the most popular ones.

sensex at 21000, nifty at 6000 ... darn ... how are these damn indices calculated !

sensex and nifty: of all the stocks that are on bse, 30 "top" stocks are chosen from different industries by a panel. these stocks are usually the market leaders from their respective industries. for example, icici bank, state bank of india and hdfc bank from banking sector, infosys, tcs, etc from information technology and so on ...

each of these stocks have different weights to it, adding up to 100. Confused, OK lets make it simple. say there are only 3 stocks in the index and i will call it dodo index. in this index i have 3 companies, viz. umesh infrastructure ltd (uil), umesh power ltd (upl) and umesh airlines (ua) (phew ... am already day dreaming).

assume, uil is at rs 200 today and has 30% weightage, upl is 1000 with 40% weightage and ua is 150 with 30% weightage. so how do we make dodo index ?

simple we multiply the price with the weightage,
i.e. 200 * 30% + 1000 * 40% + 150 * 30% = 505 !

so now if tomorrow the prices rise and uil is 220, upl is 1010 and ua is 130, the dodo index will be, 220 * 30% + 1010 * 40% + 130 * 30% = 509 !

so it means, dodo index has gone up by 4 points :) that's it ! wasn't that tough.

back to sensex and nifty, same logic applies, same calculations apply, just that sensex has 30 stocks and nifty has 50. also sensex is bse index and nifty is nse index.

coming up next ... different kinds of caps that you can buy in stock market :)