NIFTY AND SENSEX
- The sensex is an Index. Which is basically an indicator.
- The Index gives a general idea about whether most of the stocks have gone down or most of them have gone up (An average of the group, to be basic).
- Here, the Sensex is an indicator/index of all the major companies of the BSE (Bombay Stock Exchange).
- If the Sensex goes up, it means that the prices of the stocks of most of the major companies in BSE have gone up, and vice-versa.
- It comprises of 30 stocks due to the shortage for the sensitivity index.
- Nifty is also like the Sensex. It is also an indicator/index displaying the stock price variance.
- It’s just that the Nifty is an indicator of all the major companies of the NSE (National Stock Exchange of India).
- Just like the Sensex, the Nifty represents the top stocks of the major companies of the NSE.
- it comprises of 50 stocks in its index (NIFTY FIFTY).
Parameters on which Nifty and Sensex are dependent
- An investor should be very careful while selecting the stocks of a company. There are some techniques that can give us the best share.
- Firstly, an investor needs to find the good business (Big Company). Then it should search for an honest management (Reliability).
- Thus, an investor should invest in companies whose management is good and ethical. And lastly, finding the undervalued shares (most important parameter).
- There are a number of techniques determining whether a share is undervalued or overvalued. A few important techniques regarding the same, are as follows
P/E Ratio —>
- It indicates that how much the investor is willing to pay off for its earnings.
- If the ratio is 10, it means that the investors are ready to pay Rs.10 per Re.1 of EPS (Earning per share).
- The P/E ratio is widely used in the relative valuation.
P/B Ratio —>
- It indicates how much an investor is ready or willing to pay off the book value of a company.
- If a company has a ratio of 2, it means that the investors are ready to pay Rs.2 for Re.1 of the book value.
- Typically, the P/B ratio should be used in banks and commodity companies.
Dividend Yield —>
- It indicates how much return or cash dividend; the investors are earning for each rupee invested in share.
- If a company has a dividend yield of 10%, then it signifies that the company pays 10% of its share price.
- Generally, a company with higher dividend yield is preferred over a company with low dividend yield, since high dividend yield will fetch the investors more cash in comparison to the low dividend yield company.
The simplest strategy is to buy value at a fair price and hold the stock for a long period. Ultimately, the stock will go up if a business does well depending upon the index parameters.
Besides, invest in good companies when everyone is fearing.
content credits : pravsaran singh arora