Nifty vs Sensex: Difference Between Nifty and Sensex
Welcome to the battle of the indices! In the world of Indian stock markets, two indices stand out – Nifty and Sensex. Both indices are used to measure the performance of the Indian stock markets and are widely followed by investors and traders alike. While they share some similarities, they have distinct differences that make them unique.
In this blog, we will explore what are nifty and sensex, the difference between Nifty and Sensex, compare their historical performances, analyze their sector-wise performance, and examine the factors affecting their calculations.
What is an Index?
In finance, an index is like a scoreboard for the stock market. It’s a way to track and measure the performance of a group of stocks or other assets. Think of it as a snapshot of how a particular market or sector is doing. There are various types of indexes. However, the most famous one is probably the S&P 500 index. This includes 500 of the largest publicly traded companies in the US. Other types of indexes can focus on specific industries, regions, or even asset classes like bonds or commodities. These indexes help investors and analysts keep tabs on the financial markets and make informed decisions about their investments.
What are Sensex and Nifty?
NIFTY and Sensex are the two primary stock market indices in India. NIFTY, also known as the NIFTY 50, is owned and managed by the National Stock Exchange of India (NSE). While Sensex, also known as the BSE Sensex, is owned and managed by the Bombay Stock Exchange (BSE).
The Sensex was first introduced in 1986. There are 30 top listed companies under sensex listed on the Bombay Stock Exchange, based on their market capitalization. The base value of the SENSEX was taken as 100 on April 1, 1979. The sensex base year was 1978–79. The index is calculated using the free-float market capitalization method.
On the other hand, the NIFTY 50 was launched in 1996 and is calculated using the free-float market capitalization-weighted method. It represents the performance of the top 50 companies listed on the National Stock Exchange of India.
Nifty 50 vs Sensex are used as a benchmark to measure the overall performance of the Indian share market. It also provides valuable insights for investors and analysts.
What is the Difference Between Sensex and NIFTY?
Despite the similarities sensex nifty share, there are a few pointers to Sensex vs Nifty that one ought to note.
| Basic | NIFTY | Sensex |
|---|---|---|
| Full Form | Nifty stands for National Stock Exchange Fifty | Sensex stands for Sensitive Index |
| Number of Companies | 50 | 30 |
| Methodology | Free Float Market Capitalization Weighted Index | Market Capitalization Weighted Index |
| Calculation | Uses a free-float market capitalization methodology. | Uses a full market capitalization methodology. |
| Base Year | 1995 | 1978 |
| Sectors | 14 | 9 |
| Exchange | National Stock Exchange (NSE) | Bombay Stock Exchange (BSE) |
| Performance | Considered a benchmark for the performance of large-cap companies in India. | Considered a benchmark for the overall performance of the Indian stock market. |
| Rebalancing Frequency | Semi-annual. | Continuous. |
| Market Coverage | Covers 65% of the listed companies in India. | Covers 45% of the listed companies in India. |
| Performance Comparison | Nifty has outperformed Sensex in recent years. | Sensex has outperformed Nifty historically. |
| Benchmark | Most popular benchmark index in India. | Most widely tracked equity benchmark in India. |
Which is Better: NSE or BSE?
When it comes to the Indian stock market, investors often find themselves pondering the question: “Which is Better: NSE or BSE?” The Bombay Stock Exchange and National Stock Exchange are the two primary stock exchanges in India, each with its own unique characteristics. NSE introduced Nifty, a benchmark index, which comprises the top 50 stocks listed on its platform. In contrast, the base value of sensex is calculated differently. Also, all stocks that are part of NSE are a part of BSE as well.
Composition of NIFTY and Sensex
The composition of both the benchmark indices is based on the market capitalization of the companies listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) respectively.
As of May 2023, the number of companies in Nifty are 50, selected based on their market capitalization, liquidity, and other factors. Some of the major companies included in Nifty are Reliance Industries, TCS, HDFC Bank, Infosys, and ICICI Bank.
Sensex, on the other hand, consists of 30 companies, selected based on their market capitalization and other factors. Some of the major companies included in Sensex are Reliance Industries, HDFC Bank, HDFC Ltd, Infosys, and Tata Consultancy Services.
The composition of both indices is reviewed periodically to ensure that they remain representative of the overall market performance. Companies can be added or removed from the indices based on changes in their market capitalization or other factors.
NIFTY VS Sensex – Calculation Methodology
In India Nifty and Sensex are calculated on the basis of free-float market capitalization weighted method.
To understand how to calculate them, the calculation process for both indices involves the following steps:
How to Calculate NIFTY?
NIFTY is calculated using the free float market capitalization weighted methodology, which takes into account the total market capitalization of each company in the index multiplied by the percentage of shares that are freely available for trading.
The formula for calculating the NIFTY is as follows:
NIFTY = (Sum of (Free Float Market Capitalization x Stock’s Price) / Base Market Capitalization) x Base Index Value
Here, the base year for the calculation is 1995 and the base value is set at 1000.
How to Calculate Sensex?
The calculation of sensex depends on using the market capitalization-weighted methodology, which takes into account the total market capitalization of each company in the index. The sensex formula is as follows:
Sensex = (Sum of (Market Capitalization of Each Company) / Index Divisor)
Here, the index divisor is a constant that is used to maintain consistency in the index value over time.
Note: Both indices are calculated in real-time and are updated continuously throughout the trading day.
Factors affecting the calculation of NIFTY and Sensex
There are several factors that can affect the calculation of both indices, including:
- Market Capitalization: Both indices are market capitalization-weighted indices, which means that companies with larger market capitalizations have a greater impact on the index.
- Price Movements: The price movements of individual stocks can also affect the overall performance of the indices.
- Changes in the Constituent Stocks: Both indices are reviewed periodically and changes are made to the constituents based on various criteria. Any changes in the constituent stocks can have an impact on the stock market index.
- Corporate Actions: Corporate actions such as stock splits, mergers and acquisitions, and bonus issues can also impact the calculation of the indices.
- Economic and Political Events: Global and domestic economic and political events can also affect the stock market, and hence the calculation of the indices.
Sensex VS NIFTY Returns: Performance Analysis
Comparison of the historical performance of NIFTY and Sensex
These two most prominent indices in the Indian stock market, and both are used as benchmarks for measuring the performance of the market as a whole. While both indices have similar characteristics, there are some differences in their composition and weighting methodology. Additionally, sensex vs nifty returns,
Over the years, Nifty has outperformed Sensex in terms of returns. For instance, Nifty sector wise performance in the five-year period from 2016 to 2021. NIFTY gave a compounded annual growth rate (CAGR) of around 12.5%, while Sensex gave a CAGR of around 11.5%. Similarly, in the ten-year period from 2011 to 2021, NIFTY gave a CAGR of around 11%, while Sensex gave a CAGR of around 10%.
However, it’s important to note that past performance is not indicative of future results, and both indices may perform differently in the future. It’s also worth mentioning that while NIFTY and Sensex have shown a positive long-term trend. There have been periods of volatility and fluctuations, which can impact the returns. Hence, investors should not rely solely on past performance and should do their due diligence before investing in the market.
Analysis of the sector-wise performance of NIFTY and Sensex
The NIFTY and Sensex are both stock market indices that track the performance of different companies listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), respectively. Here’s a comparison of their sector-wise performance:
- Banking: The banking sector has a high weightage in both NIFTY and Sensex. However, in the NIFTY, the weightage of private sector banks is higher, while in the Sensex, public sector banks dominate.
- Information Technology: The IT sector has a higher weightage in the NIFTY compared to the Sensex. This is due to the presence of major IT companies such as Infosys, TCS, and Wipro in the NIFTY.
- Automobiles: The auto sector has a higher weightage in the Sensex compared to the NIFTY. This is due to the presence of major auto companies such as Maruti Suzuki, Mahindra & Mahindra, and Tata Motors in the Sensex.
- Oil & Gas: The oil & gas sector has a higher weightage in the Sensex compared to the NIFTY. This is due to the presence of major oil & gas companies such as Reliance Industries and Oil & Natural Gas Corporation in the Sensex.
- Pharmaceuticals: The pharmaceuticals sector has a higher weightage in the NIFTY compared to the Sensex. This is due to the presence of major pharma companies such as Sun Pharma, Cipla, and Dr Reddy’s Laboratories in the NIFTY.
NIFTY vs Sensex: Impact of Global Economic Events
Global economic events have a significant impact on the performance of both NIFTY and Sensex. This is because the Indian stock market is not isolated from the global economy and is influenced by the overall economic conditions prevailing across the world.
For instance, the 2008 global financial crisis had a major impact on the Indian stock market. Both NIFTY and Sensex saw a sharp decline during that period due to the contagion effect of the crisis. Similarly, events like the US-China trade war and the Covid-19 pandemic have had a significant impact on the performance of both indices.
When global economic events cause uncertainty or instability, investors tend to become risk-averse and may pull out their investments from the stock market. This leads to a decline in the indices. On the other hand, positive global economic events or decisions may boost investor confidence. Also leads to a rise in the indices.
To Wrap It Up…
Nifty and Sensex are the two most popular stock market indices in India. Both indices have their own unique characteristics, composition, and calculation methodologies. While Nifty is more diversified and represents a broader section of the market, Sensex is more focused on the top 30 blue-chip companies.
As an investor, you can choose to invest in either of these indices based on your investment goals and risk appetite. Moreover, if you want to get index-beating returns, you can try smallcase. smallcases are modern investment products that have been providing superior returns compared to traditional indices like NIFTY and Sensex over the last few years.
FAQs
Nifty stands for National Stock Exchange Fifty, is a benchmark index of the National Stock Exchange (NSE) in India. It represents the top 50 stocks listed on NSE, distinct from Nifty BSE.
Sensex, or the Sensitive Index, is the benchmark index of the Bombay Stock Exchange (BSE). The sensex value reflects the performance of 30 of the largest and most actively traded stocks on BSE.
The primary Sensex and Nifty difference lies in their stock selection and calculation methods. Sensex comprises 30 stocks from BSE, while Nifty includes the top 50 stocks from NSE. Additionally, they have different base values and weightage calculations.
While charting the difference between sensex vs nifty 50, Nifty 50 is a broader and more liquid index than Sensex 30, making it a better choice for most investors. It also has a higher market capitalization and is more widely tracked by global investors.
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