Difference between Nifty and Sensex

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.

How to calculate Nifty?

Nifty index uses a methodology that is weighted according to the free-float market capitalization. This means that the weight of each stock in this index is determined by its market capitalization. However, only publicly traded shares are considered. 

The formula is as follows:

Nifty= Current Market Value/ Base Market Capital *100

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 based on market capitalization, liquidity, and diversification. Its value depends on the price movement of these underlying stocks.

In its early years, Sensex followed the weighted market capitalization method for indexing. However, since 2003, it has used free-float market capitalization 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.

How to calculate Sensex?

The Sensex is calculated by adding the closing prices of the top 30 stocks in the index. Each stock is multiplied by its relevant weight, which is determined by dividing the free-float market capitalization of the 30 stocks by the base market capitalization values and then multiplying it by the base value of the index.

The formula is as follows:

Sensex= Free Float Market Capitalization Of The 30 Companies/ Base Market Capitalization *Base Value Of The Index

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:

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.

Things That Affect the Performance of an Index

Several factors can affect the performance of an index, some of which are: 

• Economic factors: Economic growth and stability can impact the indices.
• Company performance: Various technical and fundamental factors can significantly affect the performance and movement of the index.
• Market trends: Both global and domestic market trends can potentially impact the indices.
• Interest rates: Changes in interest rates could influence investor behavior and market sentiment.
• Government-related policies: Policies related to taxation, regulations, and economic reforms can impact the markets.

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.

Conclusion

In conclusion, Nifty and Sensex are pivotal benchmarks that encapsulate the performance of the Indian stock market, reflecting the broader health of the Indian economy. Both indexes serve as essential tools for investors, aiding in decision-making by offering insights into market trends. Nifty, representing the National Stock Exchange's top 50 stocks, offers a wider sectoral coverage compared to Sensex, which comprises the top 30 stocks of the Bombay Stock Exchange. Despite their differences in ownership, constituents, and sectoral exposure, both indexes play a crucial role in gauging economic development and market dynamics, making them indispensable to investors and policymakers alike.

FAQs on Difference Between Nifty and Sensex

1. What is Nifty full form?

National Stock Exchange Fifty is the full form of Nifty. It is the NSE's flagship stock market index and comprises the top 50 companies.

2. What is Sensex's full form?

The abbreviation of Sensex is Stock Exchange Sensitive Index. It is the benchmark stock index of BSE. It showcases the performance of the top 30 companies.

3. How do Nifty & Sensex work?

Both Nifty and Sensex are stock market indices that track the performance of a basket of stocks. Nifty tracks the performance of the top 50 companies, while Sensex tracks the top 30 companies.

4. Why only 30 companies are listed on BSE?

BSE has more than 5,000 companies listed on its platform, not just 30. However, its benchmark index, Sensex, comprises the top 30 companies. These companies are chosen based on their market capitalization, liquidity, and trading volume.

5. Is Nifty government or private?

Nifty is not owned or operated by the government. The Nifty index is owned and managed by Index and Services and Products Limited (IISL), which is an NSE subsidiary.