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Difference between Nifty and Sensex

10 Mins 25 Jul 2023 0 COMMENT

A stock market index is a portfolio of financial assets that represents a particular segment of the financial market. The market index’s value is derived from the value of its underlying assets. It replicates returns and involves the same risk as its underlying assets.

There are different types of stock market indexes like market capitalisation index, sectoral index, and benchmark index. The most commonly referred to index is the benchmark index, which provides an indication of the overall market performance and helps investors select suitable stocks for investment. In India, the two major benchmark indexes are the Nifty and Sensex. Read on to learn what is Nifty and Sensex and their key differences.

What is Nifty?

Nifty is a flagship market index of the National Stock Exchange (NSE). It was launched in 1996. The term Nifty is a combination of two words – National and Fifty. National, as the index belongs to NSE, and fifty because it includes the top 50 stocks listed on the NSE.

These 50 stocks typically account for 65% of the exchange’s total free-float market capitalisation. Given this, referring to the index helps you grasp the market’s performance as a whole.

Nifty50 includes the top fifty blue chip stocks listed on the NSE. These are the largest companies based on the market cap listed on the exchange. These stocks are the most liquid and span across 24 sectors.

There are three ways to invest in Nifty – direct investment in the underlying shares, investing through Index Funds, or trading in index-based derivates.

It is to be noted that there are certain eligibility criteria for stocks to be included in a market index. The index re-balancing is done periodically, for example, semi-annual basis. The constituents of the index may change as per the criteria.

What is Sensex?

Sensex is India’s first equity index launched in 1986. It is the market index of the Bombay Stock Exchange (BSE), the oldest stock exchange in Asia. Sensex is a combination of Sensitive and Index.

It includes the top 30 companies listed on BSE chosen on the basis of market capitalization, liquidity and diversification. Its value depends on the price movement of these underlying stocks.

In its early years, Sensex would follow the weighted market capitalisation method for indexing. However, since 2003, it uses free-float market capitalisation for indexing purposes.

Both Nifty and Sensex are considered to be a measure of India’s stock market performance and a reflection of the Indian economy. It is used as a benchmark to gauge growth and development in the Indian economy and industry and understand the stock market trend.

What is the difference between Nifty and Sensex?

Refer to the following table to make note of the key differences between the Nifty and Sensex market indexes:

Point of difference

Nifty

Sensex

Ownership

Index and Services and Products Limited (IISL), an NSE subsidiary, owns and manages Nifty.

The Bombay Stock Exchange (BSE) solely owns and manages Sensex.

Aliases

Nifty 50 and S&P CNX Nifty

S&P BSE Sensex

Constituents

Nifty comprises the top 50 stocks listed on the NSE.

Sensex includes the top 30 stocks listed on the BSE.

Sectors covered

Nifty has extensive exposure to 24 sectors.

Sensex covers 13 major sectors.

Base number

1000

100

Base year

1995

1978-1979

Base capital

Rs 2.06 trillion

Not applicable

 

Financial jargon to make note of:

  • Base year – It is the reference year with which values of other years are compared. Both Nifty and Sensex have shown tremendous growth from their inception.
  • Base number – It is the basic number considering which the value of the market index is calculated. The larger the difference between the base number of the market index’s current value the better it is.
  • Base capital – It is the market value that is used relative to the current market value to calculate the market index value.

Which is better? Nifty vs Sensex

The question of which is a better market index, Nifty vs Sensex, always arises. Both Sensex and Nifty are the two prominent market indices in India. While Nifty is the benchmark index of the NSE, Sensex is the popular index of the BSE.

BSE, the oldest stock exchange in not only India but also Asia, has a large pool of stocks listed and traded. On the other hand, NSE enjoys higher trading volumes and offers higher liquidity than BSE. NSE is also a leader in the derivatives segment. The Nifty and Bank Nifty derivatives contracts are one of the most traded contracts in the world in terms of volumes.

A large number of companies are listed on both BSE and NSE. Beginners in the stock market can choose to invest with BSE and in Sensex companies. While those looking to trade in derivatives futures and options can opt for NSE and Nifty stocks.

The Sensex and Nifty are closely watched by investors. Both indices play a major role in the growth of the Indian stock market and offer investors the opportunity to make profits and diversify their portfolios.

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