What is Nifty and Sensex: Difference Between Nifty and Sensex
Nifty and Sensex are two critical indices for the Indian stock market. In this article, we will understand Nifty and Sensex and their differences.
The Sensex and Nifty are India's two national stock market indices. Whether you are an avid stock market follower or an investor, you are likely to turn up across these two terms to dominate the news stories of financial gateways, business news channels, and pink papers almost every day.
So, what are the Sensex and Nifty? What role do they play in the stock market?
Are you curious? Let us decode the Sensex and Nifty for ourselves.
What exactly is a stock index?
A stock index is a highly curated list of companies listed on an exchange. The companies that appear in the index typically represent a cross-section of the economy's sectors and industries. In addition, the companies in a stock index are generally well-established and portray their industry or sector.
Because an index includes companies from almost all major sectors and industries, it is primarily viewed as one of the most significant predictors of an economy's performance. Aside from investing in companies, you can also engage in stock indexes across various mutual fund schemes.
Let us now look at the country's two major indices, the Sensex and the Nifty. Continue to know what is nifty and Sensex.
What exactly is Sensex?
Mr Deepak Mohoni, a stock market analyst, coined the term Sensex, derived from Sensitive and Index. It is a Bombay Stock Exchange (BSE) index. Sensex comprises 30 companies based on their liquidity, market capitalisation, revenue, and diversification. A company must also be listed on the BSE on the Sensex.
It is one of India's oldest indices, and it is widely regarded as a measure of market performance and a reflection of the Indian economy. It is used as a standard to assess the growth and development of the Indian economy and industry and understand the stock market pattern.
The Sensex index includes the top 30 stocks. The index's value is determined by the price movement of the traded assets. The rise in the value of the Sensex is due to the increase in the prices of the majority of the securities. While a drop in the value of the index is caused by a decline in the cost of the majority of the underlying securities.
What exactly is Nifty?
The Nifty, also known as National Stock Exchange Fifty, is the National Stock Exchange's benchmark index (NSE). The index was launched in 1996 and is also known as the CNX Nifty and the Nifty 50 by traders. The Nifty comprises the top 50 companies listed on the NSE from various sectors and industries. The index represents large-cap companies traded on stock exchanges and have a high degree of liquidity. These firms account for roughly 70-75 per cent of India's total market capitalisation.
To be included in the Nifty 50, companies must meet the following variables and criteria:
In the previous six months, the stock should have traded at an average price of 0.50 per cent or less.
The company's float-adjusted market capitalisation must be at least 2 times that of the most minor index structure.
The company is an Indian company listed on the National Stock Exchange NSE.
Nifty vs Sensex: What Is the Difference Between the Sensex and the Nifty?
Even though we now understand Sensex and Nifty, you may still be confused about these indices. Though they may appear to be the same, there are a few distinctions that a stock marketer should be aware of.
S&P BSE SENSEX
Number of Companies
There are 30 Companies
There is 50 Companies
Number of Sectors
A total of 13 industrial sectors are covered under Sensex.
A total of 24 industrial sectors are covered under Nifty.
Bombay Stock Exchange
India Index Services and Products (Subsidiary of National Stock Exchange)
Volume and Liquidity
How do you calculate the Nifty?
The Nifty 50 is computed using the free-float market capitalisation weighted method. The index price represents the total market value of all of the stocks in the index compared to the base period on November 3rd, 1995.
Market capitalisation = current market price multiplied by the number of outstanding shares
* Price * Investable Weight Factors (IWF) Index Value = (Current Market Value / Base Market Capital) * Value of the Nifty Base Index (1000)
The index's base market capitalisation is the aggregate market capitalisation of each scrip in the index during the base period. The market capitalisation is likened to an Index value of 1000 during the base period, known as the base Index value.
Investible weight factors are floating stock units expressed as a number that are tradeable and are not held by entities with a corporate strategy interest in a company. The IWF's for each company in the index is calculated based on the companies' public shareholding as reported in the semiannual shareholding pattern filed with the stock exchanges.
How is the Sensex calculated?
The Sensex is calculated using the free-float market valuation of the underpinning 30 companies and Sensex's base value. The steps for calculating the Sensex value are as follows:
First, the market valuation of each of the 30 companies is determined.
The companies' free-float market capitalisations are then estimated and added together to yield the total free-float market valuation.
Sensex formula = (Free float market valuation of 30 companies / Base market capitalisation) * Index base value
The free-float market capitalisation has already been calculated. The market capitalisation at the outset is INR 2501.24 cr. It is the value of Sensex's market capitalisation in 1978-79. And a bae score of 100.
To determine the value of the Sensex, all of these values must be entered into the Sensex formula.
Remember that Index only includes companies that have performed exceptionally well in the previous three months. That means that the shares will be pretty expensive if you want to invest in them once it is listed. As a result, it may no longer have a lot of room for growth. It could also be overpriced now that it's widely known.
However, only if you can predict the winners ahead of time will you be able to maximise your profits. As a result, it's highly beneficial to recognise the companies that will be mentioned next year. Don't compare your portfolio returns to the Sensex or the nifty in the short term.
It is always a good idea to research quality equities because there are many good stocks in mid-cap and small-cap companies that are undervalued and could be added to the index in the years ahead.
That concludes this article. We hope we were able to provide you with helpful information about what is nifty and Sensex, and it helped you comprehend Sensex and Nifty. If you enjoyed this article and want to learn more about these topics, please visit our blog, as we have an entire series dedicated to it.
Q1. What exactly are the Nifty and Sensex?
The Nifty and Sensex are benchmark index values used to gauge the overall stock market performance. The National Stock Exchange uses the Nifty Index, and the Bombay Stock Exchange uses the Sensex Index.
Q2. What distinguishes the Nifty from the Sensex?
The only distinction between the two is that the Sensex contains 30 stocks, whereas the Nifty includes 50. The Sensex is more specialised, and in a bull market, top companies drive its index value higher. On the other hand, the Nifty is a broader index because it includes 50 companies.
Q3. Is the Sensex or the Nifty better?
Sensex and Nifty are broad market indices and equity market benchmarks. Because they represent the entire stock market, any change in these two indices impacts the market. The only difference is that the Sensex contains 30 stocks, whereas the Nifty includes 50. The Sensex is more specialised, and in a bull market, top companies drive its index value higher. On the other hand, the Nifty is a broader index because it includes 50 companies. As a result, in a bull market, the Nifty's value rises less than the Sensex's. As a result, the Nifty is worth less than the Sensex. Sensex and Nifty are two independent stock market indices. As a result, neither is superior to the other.
Q4. Why does the Nifty have a higher stock market value than the Sensex?
The Sensex is more specialised, and in a bull market, top companies drive its index value higher. On the other hand, the Nifty is a broader index because it includes 50 companies. As a result, in a bull market, the Nifty's value rises less than the Sensex's.
Q5. What is the relationship between the Nifty and the Sensex?
The Nifty 50 index comprises the top 50 companies that trade on the National Stock Exchange. Nifty uses the free-float market capitalisation weighted method. Similarly, Sensex is based on free-float market capitalisation. It does, however, include the top 30 companies that trade on the Bombay Stock Exchange.