Differences Between Nifty and Sensex
When investors want to view the direction of the stock market, they usually follow a stock market index. Indices depict the overall performance of financial markets and reflect market behaviour and investor sentiment. Downward and upward market movements indicate bearish and bullish market trends, respectively.
In India, Nifty and Sensex are two principal indices that show the current conditions of a country’s stock market.
As we advance, you will learn about key differences between Nifty and Sensex and other details.
What Is an Index in the Stock Market?
A stock index is a specially curated list of companies of a particular type representing the overall group/sector. These companies are usually the top performers of a group. The index constituents are primarily selected based on the market their capitalisation. Hence, the largest stocks form a particular index. As a result, changes in the prices of underlying stocks change the value of a particular index. This allows investors and experts to understand the overall state of financial markets.
Also Read: Why Do Stock Prices Fluctuate?
What Is Nifty?
Nifty (National Stock Exchange Fifty) is NSE’s standard index. It was launched in 1996, and traders also call it CNX Nifty or Nifty 50. Nifty lists the top 50 stocks of companies with highest market capitalisation across different market sectors and industries listed in the NSE.
The base value of this index is 1000, and it is calculated using free-float market capitalisation methodology. It is owned and managed by India Index Services and Products Ltd. (IISL), a subsidiary of NSE.
What Is Sensex?
Introduced in 1986, Sensex is India’s oldest stock index. It consists of the top 30 listed companies in terms of market capitalisation on the Bombay Stock Exchange. The term “Sensex” is derived from amalgamating two words- “sensitive” and “index” and was first coined by Deepak Mohoni, a financial journalist.
Traders also refer to this index as the S&P BSE Sensex. Sensex is calculated by using the free-float market capitalisation method. In this method, the current market value of the outstanding shares issued by a company is considered.
What Are the Differences between Nifty and Sensex?
From the indices discussed above, Nifty and Sensex might seem similar in a lot of ways. But they have some vital dissimilarities between them.
The following table illustrates all key differences between Nifty and Sensex properly:
|Introduced In||1986 (oldest stock exchange in India)||1996|
|Former Names||S&P BSE SENSEX||CNX FIFTY|
|No. of Sectors*||13 industrial sectors||24 industrial sectors|
|No. of Companies||30||50|
|Managed By||Bombay Stock Exchange (BSE)||India Index Services and Products (Subsidiary of NSE)|
|Liquidity & Volume||Low||High|
What Is the Process to Calculate Nifty?
Nifty is calculated using a free-float market capitalisation weighted method by including the top 50 companies. As a result, the price of this index imitates the gross market value of all listed stocks relative to its base time period on 3rd November 1995.
The formula for market capitalisation is given below:
Market Capitalisation = Current market price x total number of outstanding shares.
The total market capitalisation of each bid price in the NSE during the base period is the index’s base market capitalisation. During this period, market capitalisation and an index value of 1000 are equated, which is the base index value.
The formulas to calculate the free float market cap are as follows:
- Free Float Market Capitalisation = Shares outstanding x price x Investable Weight.
- Factors (IWF)^Index Value = (Current Market Value / Base Market Value) x Nifty Base Index Value (1000).
How to Calculate Sensex?
Sensex is computed by taking into consideration the free-float market capitalisation of the top 30 companies and Sensex’s base value.
The market capitalisation of its top 30 companies is calculated. Then, free float capitalisation of the companies is added to get this total free-float capitalisation estimate.
The formula for calculating Sensex is as below:
Sensex = (Free float market capitalisation of 30 companies / Base market capitalisation) x Base value of the index.
Many established and stable companies simultaneously feature in Nifty and Sensex. Investing in stocks on either of these indices will help you in creating wealth. Even if there are some differences between Nifty and Sensex, both indices follow the same method for listing stocks. Plus, many of India’s largest companies are listed on both indices.
Frequently Asked Questions
What are the things that affect the performance of an index?
An index’s performance can be affected by changes in interest rates, economic situations, inflation rates, foreign influence, etc.
What are the types of stock market indices?
Stock market indices can be classified as benchmark indices, market capitalisation indices, broad market indices and industry-based indices.
What is the difference between market cap and free float market cap?
Market cap is the total value of shares of a company. The word ‘float’ means the number of outstanding shares available for trading by the general public.