Difference Between Sensex and Nifty

Key takeaways

• The Sensex is the benchmark index of the Bombay Stock Exchange.
• It was introduced in 1986, making it the oldest stock index in India.
• The Nifty is the benchmark index of the National Stock Exchange.

• It was introduced in 1996, so it's relatively newer than the Sensex.

  
  

The Sensex and Nifty are India’s leading benchmark indices, widely used to evaluate the performance of the stock market and individual stocks. Both indices serve as essential tools for identifying market trends, assessing sentiment, and comparing market movements. While they share certain similarities, understanding their differences is key to gaining a better insight into the dynamics of the stock market. Before exploring their distinct features and contrasts, it’s important to understand what a stock market index represents.

What is Sensex?

The Sensex, short for the Sensitive Index, is a stock market index that represents the performance of the Bombay Stock Exchange (BSE). It is composed of 30 well-established and financially sound companies from diverse sectors. These 30 companies are carefully selected to provide an overview of the Indian stock market's performance. Launched on January 2, 1986, the Sensex has become a prominent benchmark for measuring the overall movement of the market.

How to Calculate Sensex?

The Sensex is determined by adding up the closing prices of the top 30 stocks included in the index, each multiplied by its relevant weight. These weights are determined by dividing the free-float market capitalisation of each stock by the base market capitalisation and then multiplying it by the index's base value.

The formula for Sensex:

For Sensex calculation, the base year to calculate Sensex is 1978-79 and the base value is static, Rs. 2501.24 crore is to be used as the base market capitalisation and a value is 100 is taken as base value

So, the final formula for calculation Sensex is:

What is Nifty?

The Nifty, officially known as the Nifty 50, is another major stock market index in India. As the name suggests, it comprises 50 well-established and liquid stocks from different sectors. The Nifty was introduced by the National Stock Exchange (NSE) on April 22, 1996, to provide a broader representation of the equity market's performance.

How to Calculate Nifty?

The NIFTY index utilizes a methodology that is weighted according to the free-float market capitalisation. This implies that each stock's weight in the index is determined by its market capitalisation, but only the shares that are publicly available for trade are considered. These publicly available shares are known as free-float shares.

Formula for calculation NIFTY is:

For NIFTY calculation, the base period is 3rd November 1995, the base value is considered as 1000 and the base capital stands at Rs. 2.06 trillion.

The Free Float Market Capitalisation is calculated as follows:

Difference between Sensex and Nifty

The table below will give you a clear comparison of nifty vs sensex, helping you understand the key differences between these two major stock market indices

Factors that affect the performance of an index

Let us take a look at the various factors that can influence the performance of an index:

1. Economic conditions

Economic indicators, such as the country’s GDP, rate of inflation, and unemployment, mirror the country's overall economic growth and stability. When it comes to the performance of an index, these economic conditions have a significant effect. A high GDP equals high consumer spending and better business activities. This, in turn, results in improved company profits and share prices.

2. Company performance

Another factor that can affect index performance is the individual companies' financial health and performance. Elements such as management changes, earnings reports, and new launches also affect the index's performance. Positive results can result in increased stock prices and vice versa.

3. Global market trends

The past few years have shown how international trends can affect the domestic stock market. Pandemics, political instability, conflicts, and natural disasters can cause the market to perform badly, subsequently impacting indices.

4. Interest rates and inflation

Rising inflation reduces everyday expenses, leading to reduced company profits. Banks respond to growing inflation by increasing interest rates, which further increases a company’s debt burden. The cycle continues with a direct effect on corporate profits and stock performance. Conversely, lower interest rates encourage borrowing and spending, which results in increased company earnings and potentially higher stock prices.

5. Government policies

When the government advocates positive policies on taxation, regulations, and economic reforms, it can impact the profitability of companies. In the past, it was seen that when RBI brings modifications to the changes in cash reserve ratios and open market operations, it affects the liquidity and performance of the share market.

List of NSE NIFTY 50 Companies

Listed below are the Nifty 50 companies.

Listed below are the Sensex 30 companies.

Which is better? Nifty or Sensex?

Nifty and Sensex are the two prominent market indices in the country. Nifty vs. Sensex has been an ongoing debate for many years. Sensex, better known as the Bombay Stock Exchange (BSE), is among the oldest stock exchanges in the world. A large pool of stocks is listed and traded here.

NSE, on the other hand, is a much bigger player. A leader in the derivatives segment, there are not only more companies in the NSE, but it also enjoys far more trading volumes while offering higher liquidity than the Sensex.

Beginner investors are often suggested to start their investment journey from the Sensex. NSE Nifty is the way forward for those who wish to trade in derivatives F&O.

The NSE is a much broader market index with over 24 sectors. The Sensex, on th other hand, covers 13 sectors. NSE is more prominent with its numbers; the credit goes to the much bigger number of active stock traders, which brings in aggressive buying and selling and strong liquidity. Though both indices have shown similar returns historically, Sensex has traditionally performed better.

Conclusion
 

In conclusion, the Sensex and Nifty are essential tools for investors, providing insights into the Indian stock market's performance. While they share the common goal of tracking market trends, their differences in composition, calculation, and impact make them unique indicators of economic health and market behaviour.

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