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Even if you are graduating or have graduated in the commerce stream, the terms Sensex and Nifty may sound as jargons. In fact, they are. Frequent use of these terms in news media has led to a misconception that if Sensex and Nifty are witnessing an uptick, the stock market is proving profitable for all investors who have parked their money in shares of listed companies. In reality, it is not completely true. In order to have a clear understanding, let us today know the exact meaning of Sensex and Nifty, and also weigh whether young professionals must give shares a chance in their investment portfolio.
What is Sensex?
Shares of listed companies are tradeable on bourses, popularly known as stock exchanges. To keep a track of whether the overall stock market is returning profits or losses to investors, experts have devised a few indices. Among these is the Sensex or BSE 30. It is nothing but an index of 30-odd companies listed on the Bombay Stock Exchange, India’s oldest bourse. These 30 corporations are roughly a representative of the Indian economy cutting across sectors. For example, Sensex has shares of some banking companies, some insurance companies, some IT and some manufacturing concerns.
A rise in Sensex means some or all component companies are performing better than previously, while a fall indicates a negative return on shares of some or all constituent companies. It is notable that even when Sensex posts positive return, an investor may still see negative return in her portfolio owing to the fact that the company which she has invested in may not be one of the 30 companies in Sensex.
What is Nifty?
Nifty or Nifty 50 is the index of 50 companies listed on National Stock Exchange (NSE). These 50 are big corporations and akin to Sensex they represent their respective sectors in the economy. From cement to pharma to banking, Nifty is a representative of the wider economy of India. The movement in the value of Nifty index indicates how the India Inc. is increasing/ decreasing shareholders’ value.
Should young professionals invest in shares?
Ask yourself. You are the best person who can take this decision. Stock market has provided high returns to many investors; some prominent names include Rakesh Jhunjhunwala (who also happens to be a Chartered Accountant) and Chennai-based Dolly Sharma. On the contrary, many investors have lost money by investing in the stock market. To put it in a simple way, shares are a bet on how a particular company would perform and hence, better financial results of the company can increase the value of one’s holding while losses and other events such as scams can diminish the value of shareholders.
Traditional investment destinations like bank deposits and debentures (which carry a fixed rate of interest) have always taken the sheen off the share market. However, time is changing and more and more young professionals are considering placing at least some of their investment holdings in shares.
What’s happening currently?
We all know how coronavirus has disrupted trade and commerce not only in India but globally. What can we expect in a scenario when factories are shut and people are not spending money to buy non-essential goods and services? Indeed, this means that the long due correction in prices of shares listed on Indian bourses has begun. In the month of March, both Sensex and Nifty slipped from highs and most of the listed companies lost on their market capitalization due to fall in value of shares (Also read: The 2020 Stock Market Crash). MukeshAmbani, the owner of Reliance Industries, has seen his net worth falling by lakhs of crores. This is because most of his wealth comes from Reliance Industries shares which have fallen in the COVID-19 selloff.
Many analysts are now suggesting that shares of companies have touched their bottom levels and this may be the best time for investors to pick their favourites. But what if the lockdown continues for a little long? What if the coronavirus crisis is yet to reach its upper limit? Nobody actually knows. Still, there are some industries including FMCG and pharma where investment in related companies’ shares can lead to growth in wealth. To be particular, the only Indian billionaire who hasn’t seen his net worth falling in the crisis is the owner of D-Mart. This is so because investors are hoping that the company will be able to tide over the crisis as it sells many essential items. In this light, shares of Nestle India and Hindustan Unilever have also gained.
Final Verdict
Investing in shares remains risky and one needs to be very cautious. This is an interesting subject where we cannot suggest a closed-ended Yes or No. Your discretion is much necessary.
Also read: Understanding the Laws in Place During Lockdown
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