Difference Between Nifty and Sensex

Well, you might have noticed some terms like Nifty and Sensex while analyzing the Stock market. You may not even understand these terms and their purpose. Here, in this blog, we shall have a deep evaluation of Nifty and Sensex and their differences. Sensex and Nifty are the two crucial metrics or data that stock marketers employ every day to determine market trends.

In India, there are two stock exchanges; the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Each stock exchange must have an index to measure the performance of the market.

Sensex is the stock market index for the Bombay Stock Exchange (BSE), and Nifty is the stock market index for the National Stock Exchange (NSE). Thus, they form the foundation of the Indian stock market. Now, let’s delve deeper into these terms which are the foundation of the Indian Stock Market.

Understanding Sensex

Sensex also known as Sensitive Index, is the Index for the Bombay Stock Exchange. An index is a sample of listed companies that stand as the representative. With a standard value of 100, Sensex is the market-weighted stock index that incorporates shares from the top 30 and well established companies, on their performance and financial reliability.

Almost 6000 companies are filed under the Bombay Stock Exchange. It is really hard to analyze the performance of each company individually. To resolve this issue Bombay Stock Exchange (BSE) makes use of Sensex. Sensex randomly sorts out some 30 companies that are persuading and performing the best in the market.

If these companies don’t perform well, then the market trends are down. Sensex doesn’t pick good companies just like that. It has certain criteria that the Bombay Stock Exchange uses to pick companies under Sensex. Some of the criteria are – Market Capitalization, Trading Frequency.

Understanding Sensex

Nifty, also known as NIFTY 50 and CNX Nifty, is the Index used by the National Stock Exchange (NSE) to determine the market trends. Nifty comprises 50 stocks that are actively performed and traded on NSE, and it should be owned and managed by India Index Services and Products Ltd. (IISL), a subsidiary of NSE.

Here, the standard base value of the index is 1000, and it is calculated using the free-float market capitalization weighted method. Similar to Sensex, the market capitalization is first calculated by multiplying equity with market price.

Nifty selects stocks from different sectors. Some are from sectors like IT, Consumer Goods, Financial Services, Automobiles, Telecommunication, etc. Nifty considers some criteria to qualify, they are – Float Adjustment, Domicile, High Liquidity, Industry Representation, and Average daily turnover.

How to Calculate Nifty?

The Nifty is calculated using a free float market capitalisation-weighted methodology of all 50 companies. The level indicated by the index reflects the total market value of all its constituent stocks within a specific timeframe.

To clarify, it’s essential to understand the terms like “float-adjusted” and “market capitalisation”. Market capitalisation is the total value of a company’s shares held by both the company and its investors. Free-float market capitalisation keeps out shares held by certain investors like trusts, government, and private entities like promoters.

To calculate the Index Value the formula is,

Index Value = (Current Market Value / Base Market Capital) * Nifty Base Index Value (1000)

Here, The current market value is the total market capitalisation of all 50 companies with their respective weights. The base market cap represents the aggregate market capitalization of all 50 companies during the base period as the Index’s base market capitalization.

During the base period, the market capitalization is equated to an index value of 1000, which is known as the base index value.

Free Float Market Capitalisation = Shares outstanding * Price * Investable Weight Factors (IWF)^

How to Calculate Sensex?

Sensex is calculated by determining the free-float market capitalization of all 30 companies and the base value of Sensex. Before calculating the Sensex, the market capitalization of 30 companies is calculated. To get the free-float capitalization value, all companies’ free Float capitalization is calculated and added together. Here is the Sensex formula,

Sensex formula = (Free float market capitalization of 30 companies / Base market capitalization) * Base value of the Index.

Difference Between Sensex and Nifty.

Let’s have a quick difference between Sensex and Nifty with the following table.

Parameters	Sensex	Nifty
Full name	S&P BSE Sensex	NSE Nifty 50
Ownership	It is owned and managed by BSE Ltd.	It is owned and managed by NSE Indices.
Index Composition	It represents the top 30 large companies.	It represents the top 50 large companies.
Stock Exchange	Traded on the BSE (Bombay Stock Exchange)	Traded on the NSE (National Stock Exchange)
Base Year	1978-79	1995
Base Value	100	1,000
Calculation Method	Free-float market capitalisation-weighted index	Free-float market capitalisation-weighted index
Weighting Method	Market capitalisation-weighted, based on free-float shares	It represents the top 50 large companies
Sector Exposure	13 Major Sectors	24 Major Sectors
Market Influence	It reflects the overall sentiment and trends of the border market	It reflects the overall sentiment and trends of the border market in the smaller sample size
Significance	Considered as the benchmark for Indian Equity markets	Considered as the prominent stock market in India. It is the oldest Stock market.

Conclusion

Hope, it’s clear to you now. Thus, these are the important features of Nifty and Sensex. Though they have some similarities, they are different in handling the number of stock markets. These two are the significant indexes used to determine the stock market.

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