Nifty vs Sensex: Difference Between Nifty and Sensex
Nifty and Sensex are two key indices that represent the Indian stock markets. As benchmarks, they provide insights into market trends and help investors and analysts evaluate market performance. While both indices play a similar role, they differ in their composition, calculation methods, and market coverage. This article explains what Nifty and Sensex are, highlights their differences, and examines their performance and calculation methodologies to help readers better understand these critical market indicators.
What is an Index?
An index in finance tracks the performance of a specific group of stocks or assets, offering a snapshot of market trends. For instance, the Nifty 50 represents 50 major companies listed on the National Stock Exchange (NSE) in India. Indices can focus on sectors, regions, or asset classes like bonds or commodities, helping investors evaluate market movements and make informed decisions.
What are Sensex and Nifty?
Sensex and Nifty are the two primary stock market indices in India, serving as benchmarks for the country’s financial markets. The Sensex, introduced in 1986, represents the 30 largest and most actively traded companies on the Bombay Stock Exchange (BSE). It uses the free-float market capitalisation methodology, with a base year of 1978-79 and a base value of 100.
The Nifty 50, launched in 1996, represents the top 50 companies listed on the National Stock Exchange (NSE). It also employs the free-float market capitalisation methodology, with a base year of 1995 and a base value of 1,000. Both indices provide a reliable gauge of market performance and are widely used by investors and analysts to track economic and market trends.
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 Capitalisation Weighted Index | Market Capitalisation Weighted Index |
| Calculation | Uses a free-float market capitalisation methodology. | Uses a full market capitalisation 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. |
Which is Better: NSE or BSE?
When comparing the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), the choice often depends on an investor’s needs. The NSE is known for its advanced technology, higher trading volumes, and the popular Nifty 50 index, which tracks 50 leading companies. It is preferred for derivatives trading and intraday transactions due to its liquidity and efficiency.
The BSE, established in 1875, is Asia’s oldest stock exchange and is renowned for its extensive listings, including small- and mid-cap companies. It offers the Sensex index, which reflects the performance of 30 major companies. While both exchanges provide similar functionalities, NSE tends to attract more institutional investors, whereas BSE caters to a broader spectrum of companies and retail investors.
Composition of NIFTY and Sensex
The composition of Nifty and Sensex is based on the market capitalization of companies listed on their respective exchanges.
Nifty 50
The Nifty 50 comprises 50 companies from the National Stock Exchange (NSE). These companies are selected based on factors such as market capitalisation, liquidity, and trading frequency. The index includes companies from diverse sectors like financial services, information technology, oil and gas, consumer goods, and more, ensuring broad market representation. As of January 2025, prominent companies in the Nifty 50 include Reliance Industries, HDFC Bank, Infosys, ICICI Bank, Tata Consultancy Services (TCS), and Bharti Airtel. The index covers approximately 65% of the free-float market capitalisation of the NSE, making it a key indicator of market trends.
Sensex
The Sensex consists of 30 leading companies listed on the Bombay Stock Exchange (BSE). These companies are selected based on their market capitalisation, liquidity, and consistent trading activity. The Sensex focuses on blue-chip companies, which are leaders in their respective industries, providing a snapshot of the Indian economy’s performance. Major companies in the Sensex include Reliance Industries, HDFC Bank, Infosys, TCS, Mahindra & Mahindra, and Larsen & Toubro. The Sensex covers approximately 45% of the free-float market capitalisation of the BSE.
Both indices are periodically reviewed and rebalanced to ensure they accurately reflect the market’s dynamics. Companies may be added or removed based on changes in their market capitalisation, sector representation, liquidity, or other criteria. This periodic adjustment helps maintain the relevance and integrity of the indices as benchmarks for the Indian stock market.
NIFTY VS Sensex – Calculation Methodology
In India Nifty and Sensex are calculated on the basis of free-float market capitalisation 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 capitalisation weighted methodology, which takes into account the total market capitalisation 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 capitalisation-weighted methodology, which takes into account the total market capitalisation 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 Capitalisation: Both indices are market capitalisation-weighted indices, which means that companies with larger market capitalisations 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 explore stocks on NSE, you can try smallcase!
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. It also has a higher market capitalisation and is more widely tracked by global investors.
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