Difference Between Nifty and Sensex

Edited by Diffzy | Updated on: July 21, 2023

       

Difference Between Nifty and Sensex

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Introduction

Thousands of stocks are listed on the enormous and enormous Indian stock market. Each trader or investor searches for a certain opportunity or set of criteria to determine their best wager. The values of stocks are determined by the index. The index identifies the nation's economic trends and gauges the stock market's overall performance. An index's value increase suggests that the stock market as a whole is performing well, which is a sign of a strengthening national economy. The stock market is regarded as being in poor health when it declines, which is a sign of bad economic trends nationwide. On this note, we have two indices Sensex and Nifty which represents the stock value of the Bombay stock exchange and the National stock exchange of India. Here we will witness the difference between Sensex and Nifty.

Nifty vs Sensex

The two primary stock exchanges in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Their indices are the Nifty 50 and Sensex. Out of the more than 5700 companies that are listed on the BSE, Sensex tracks 30 that are extremely large and well-established. These 30 businesses represent the overall economic and stock market trends in India and come from a variety of industrial sectors. While the NIFTY 50 index measures the 50 largest and most liquid equities among the more than 1600 firms traded on the NSE. These top 50 corporations come from a variety of industries. As a result of their striking similarity in pronunciation, the Nifty 50 and Sensex are frequently used for the same thing. They are very different from one another, nevertheless, in practice. Even though there are more companies in Nifty, Sensex is older and has consistently outperformed Nifty. The volume and liquidity of the Nifty is high in comparison with the Sensex which is quite low for the oldest stock exchange of Asia. Beginners should consider the BSE, while seasoned investors and traders typically favor the NSE. Additionally, BSE is the best option for an investor wishing to invest in new businesses. Derivatives NSE is the best alternative for traders who work with futures and options, nonetheless. It is crucial to remember that there are other considerations, such as individual investment goals and risk tolerance, that should also be taken into account when deciding between the two exchanges, even though it may be true that novice investors should choose the BSE and seasoned investors prefer the NSE.

Difference Between Nifty And Sensex In Tabular Form

Parameters of comparisonNIFTYSENSEX
IndexNifty is the benchmark index of the NSE or the national stock exchange.Sensex is the indicating benchmark of the BSE or the Bombay stock exchange.
YearIt came into existence in the year 1996.It was incorporated in the year 1986.
Base yearThe base year is 1995.1997-1998 is taken as the base year in the Sensex.
Base valueThe base value of nifty is  1000.The base value of Sensex is 100.
CoverageThe Nifty is a larger index that includes companies from 24 different industries.The stock index includes companies from up to 13 distinct industries.

What is NIFTY?

One of India’s most popular stock market indices, the NIFTY 50 is the National Stock Exchange’s flagship index. It keeps tabs on 50 large firms’ stocks in total, all of which are connected to different industries and sectors. Nearly three-fourths of India’s overall capitalization is represented by the NIFTY 50, which is based on large-cap-oriented companies. Launching index funds, ETFs, and other structured products, as well as benchmarking fund portfolios, are all made easier by NIFTY 50.

We have used 50 along with Nifty. This "50" signifies the top 50 companies listed on the stock exchange. The selected companies are highly reputed and profit-making companies. Due to their reputation as secure and dependable businesses, investors frequently choose to invest in them. The chosen top 50 companies’ performance is reflected in the Nifty index, a benchmark index. To help traders and investors make wise decisions, it offers a picture of the mood of the market as a whole. Market capitalization, access to liquidity, and trading volume are just a few of the variables that determine whether or not a company is included in the Nifty index. The Nifty index is adjusted frequently to reflect how the stock market is always evolving.

Further, we will discuss the criteria or the requirements that need to be fulfilled for selecting the 50 stocks or 50 companies of Nifty. These are as follows:

  • Stock must be listed on the NSE and be available for trading in futures and options on the NSE.
  • The registered office of the company should be in India.
  • Large-cap stocks with a market cap of up to INR
  • Liquidity is abundant.
  • Excessive volume

Every six months, the stock list is evaluated. The Nifty 50 is reduced to the top 50 participants. The NSE criteria are met by replacements that are added from corporations.

Four weeks or more before any modifications are made, the NSE notifies the public. As Nifty 50 equities constitute the foundation for many financial products and baskets, it is crucial. It also allows baskets time to restructure their investments.

Calculation of Nifty

Now we will discuss how we can calculate the nifty which is as follows:

The free float capitalization-weighted method of all 50 corporations is used to compute the Nifty or National Fifty. About the base period on November 3, 1995, the Index’s price reflects the combined market value of all the stocks that make up the Index.

Market capitalization is calculated by multiplying the stock price today by the number of outstanding shares.

The base market capitalization of the Index is the total market value of all of the securities included in it during the base period. The market capitalization is converted into the base index value, which is 1000 during the base period, by multiplying it by the market capitalization.

Free Float Market Capitalization = Outstanding Shares Nifty Base Index Value (1000) = (Current Market Value / Base Market Capital) * Price * Investable Weight Factors (IWF) Index Value

The performance of the Nifty Index could be affected by a worldwide recession. The Nifty Index suffers from increasing inflation. Because of the influence that inflation has on business borrowing costs and expansion plans, this is the case.

As discretionary spending declines as a result of higher inflation, businesses find it harder to sell their goods and services. 

What is SENSEX?

The Standard & Poor's (S&P)-run Sensex is the oldest stock index in India, having been established in 1986. For analysis and investment purposes, it tracks the Indian economy's cycle as well as the growth of certain sectors. One of the first stock exchanges in India was the Sensex. It includes the total value of 30 stocks from businesses that are listed on the BSE. These equities, which are owned by some of the biggest companies in India, are a good indicator of how the Indian economy is doing overall. The 30 companies chosen by Sensex are the most alluring, effective, and market-best. The market trends are downward if these businesses are performing poorly. The market trends are positive if only these 30 businesses are outperforming, though.

The performance of the 30 chosen stocks is directly reflected in the level of the index, which is produced using the free-float market capitalization approach and uses the Sensex as an example. The term “free-float market capitalization” refers to the percentage of all shares issued by corporations that are easily traded by the general public on the market. When using the free-float market capitalization method, the index represents the market value of all 30 stocks that were chosen compared to a base period. Each of the 30 firms’ market capitalizations is first computed to produce the free-float market capitalization, which is then multiplied by the free-float factor to produce the Sensex. The Index Divisor is used to divide it after that.

A key factor in determining the Sensex is the Index Divisor. It is a fixed amount that is applied to the index to take into account any fluctuations in the market capitalization of the member stocks. By doing this, it is made sure that the index continues to reflect the market as a whole. The Divisor is originally established at a particular amount and is thereafter modified regularly to take into account stock splits, incentive issues, or other business activities that can alter the market capitalization of the shares in the index. The index value, which provides a snapshot, is calculated by dividing the Sensex’s free-float market capitalization by the index divisor.

Further, we will discuss the important requirements or criteria for the selection of the top 30 companies for the BSE Sensex. These requirements are as follows:

  • On the BSE, a stock must be listed.
  • stocks with a large market cap that are large-cap.
  • large liquidity.
  • everyday average turnover.
  • widespread industrial representation.

Next, we will discuss how we can calculate the Sensex in just simple steps. The free-float capitalization of each of the 30 firms and the Sensex base value is used to generate the Sensex, also known as the sensitive Index.

The steps to compute the Sensex are shown below:

  • It is determined how much money 30 different companies’ markets are worth.
  • To determine the total free-float capitalization value, the free-float capitalization of each company is estimated and combined.
  • Use the Sensex formula: Sensex formula = (Free float market capitalization of 30 firms / Base market capitalization) * Base value of the Index.

It is done to determine the Sensex value.

Dollars (USD) and Indian rupees (INR) are used to calculate the Sensex. The index had a 3.71 trillion rupee mean total market capitalization as of August 31, 2021.

Following are the index's top five components:

  • Reliance Industries
  • HDFC Bank
  • Infosys
  • Housing Development Finance Corp.
  • ICICI Bank

Difference Between Nifty And Sensex In Points

  • 50 of the most significant and liquid firms make up the Nifty.  Sensex, on the other hand, is made up of 30 of the biggest and most popularly traded firms.
  • The Nifty has a base index value of 1000, while the Sensex has a base index value of 100.
  • The nifty is operated by the India Index Services and Products (a National Stock Exchange subsidiary). In contrast, Sensex is operated by the BSE.
  • The Sensex is one of the oldest stock exchange indices which is in incorporation since 1986. On the other hand, Nifty is new as it was incorporated in the year 1996.
  • The Sensex covers 13 industrial sectors as compared to the Nifty which covers 24 industrial sectors. The number is high in the Nifty as compared with the Sensex.
  • 50 of the most significant and liquid firms make up the Nifty. While 30 of the biggest and most active firms make up the Sensex.

Conclusion

In the light of everything that has been discussed above it can be concluded that due to the large number of listed stocks and the fact that by the time the calculation was complete, the market trends would have altered, it would be both time-consuming and unfeasible. We have an answer to the problem in the form of an index value. Stocks for the Index are selected from across all of the major industries, rather than just one particular sector. This will enable us to evaluate and show performance while considering the whole picture rather than just one particular stock market sector.

So, we have Sensex for beginners which determines the value of 30 big companies. While we have nifty for the investors who want to deal in the derivatives which represents the top 50 companies. The amount of firms that are clubbed together is the primary distinction between the Sensex and the Nifty. Nifty takes into account 50 firms, whereas Sensex takes into account 30 companies. But statistically speaking, Sensex has outpaced Nifty because of how strongly bullish BSE is.

References

  • https://www.forbes.com/advisor/in/investing/what-is-nifty-and-sensex/

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