How are the Nifty and Sensex indices calculated? What do they indicate?

India's two major stock exchanges are the National Stock Exchange and the Bombay Stock Exchange. Several stocks are listed on both exchanges. You can invest in any to earn decent returns. You should consider the market positioning before investing in stocks. Considering all stocks is challenging, given how massive the stock exchanges are. Here is where market indices come to your rescue. 
 
Nifty and Sensex are the most popular market indices in India. Nifty is associated with NSE, while Sensex is associated with BSE. Each market indices helps you understand the positioning of the stock exchange they are linked to. A quick online search for Nifty and Sensex today is all you need to do to know the market position and make suitable decisions.
 
Following is a more detailed description of the Nifty and Sensex market indices, their calculation method, and more. 
 
What are Nifty and Sensex? 
 
Nifty and Sensex are the benchmark market indices of their respective stock exchanges. They broadly represent the market, including the most active and liquid stocks. Nifty includes the top-50-stocks listed on the NSE. Sensex consists of the top 30- stocks listed on the BSE. The performance of these market indices set the tone for the entire stock exchange. If the Nifty and Sensex numbers are high, the market positioning is favourable and vice-versa. 
 
How are Nifty and Sensex calculated? 
 
The calculation of Nifty and Sensex works on similar lines. For the Nifty 50 analysis, the stocks listed on the Nifty Index are considered. NSE's website mentions a detailed description of the Nifty Index listing criteria. Nifty value is computed using the free-float market capitalisation method. Every stock company is given suitable weightage in the index according to its market value and performance. 
 
Sensex is calculated in the same manner. The Sensex Index listing is prepared, and stocks are included in it. The free-float market capitalisation method is used for computation. Note that the base year and value are used for Nifty and Sensex calculations. For Nifty, the base year is 1995, and the base value is 1,000. Sensex's base year is 1979, and the base value is 100. Ever since their introduction, both market indices have shown tremendous growth. 
 
What do Nifty and Sensex indicate?
 
As mentioned, Nifty and Sensex are key indicators of market positioning. When the new states or anyone says the market was soaring high or low, they indicate the Nifty and Sensex value. Generally, it is best to consider the market indices' value for investing. You can also invest in these market indices. You can invest in Nifty 50 and Sensex as a direct and indirect investments.
 
In direct investment, you invest directly in stocks that are a part of these market indices. In indirect investment, you invest in linked instruments like Derivatives, Mutual Funds, and Exchange-Traded Funds.