The two most prominent indicators in the Indian stock market are the Sensex and the Nifty. They are the benchmark indexes against which the majority of other indices and stocks compare their performance.
However, there are specific differences and similarities between the Sensex and the Nifty that investors must grasp in order to gain a more comprehensive understanding of the stock market.
But before we get into the specifics of Nifty vs. Sensex, let’s first define an index and what is meant by Sensex and Nifty.
What is an Index?
A stock index is a well-curated collection of companies that are listed on an exchange. The companies in the index typically cover many sectors and industries in the economy.
Furthermore, the companies that comprise a stock index are often well-established and represent their industry or sector.
Because an index includes companies from practically all important sectors and industries, it is often recognized as one of the best indicators of an economy’s performance.
Aside from investing in companies, you may also invest in stock indexes through various mutual fund schemes.
What is Sensex?
The word Sensex is derived from the mixture of the two words ‘Sensitive’ and ‘Index’ and was coined by a financial journalist, Deepak Mohoni.
Sensex is a market-weighted stock index with a base value of 100 that comprises shares from the top, well-established 30 companies based on their performance and financial health.
The first step in calculating the Sensex is to multiply the market capitalization of each of the 30 firms by the free-float factor to obtain the free-float market capitalization. After that, the index divisor divides it.
What is Nifty?
The Nifty, also known as the National Stock Exchange Fifty, is the benchmark index of the National Stock Exchange (NSE). It was introduced in 1996 and is usually referred to as the CNX Nifty and Nifty 50 by traders.
Nifty comprises 50 top companies across different sectors and industries that are listed on the NSE. The index represents large-cap companies, which typically list on stock exchanges and have a high level of liquidity.
These businesses account for between 70% and 75% of India’s overall market capitalization.
To calculate nifty, first, you need to derive the market capitalization of the shares, which is calculated by multiplying the number of shares by their prices.
Then, multiply the Investable Weight Factor (IWS) with the market capitalization to get the free-float market capitalization. Lastly, calculate the index value by multiplying the base market value with (base index value x 1000)
Difference Between Sensex and Nifty
|The Sensex is the standard index of the Bombay Stock Exchange||The nifty is the standard index of National Stock Exchange|
|It is the oldest stock index in India, established in 1986||Nifty is a newer stock index, established in 1996|
|It is composed of the words “sensitive” and “index”.||It is comprised of the words ‘national’ and ‘fifty’|
|Sensex includes the top 30 companies listed in the BSE||Nifty includes the top 50 companies listed in the NSE|
|The stock index includes businesses from up to 13 distinct industries.||In contrast, the Nifty includes a wider range of companies from 24 distinct industries.|
|The index is calculated using a base value of 100||The index is calculated using a base value of 1000.|
|The base year for the calculation of the Sensex is 1978-1979||The base year used in the calculation of the Nifty is 1995.|
Factors That Affect the Performance of an Index
Sensex and Nifty are highly affected when the economy is affected by factors like inflation and the global crisis. When there is a boom in the economy, the stock market and indices will be upward, while when the economy is suffering from an outer crisis, the stock market and indices will be downward.
There are many macroeconomic factors influencing the performance of the indices:
- Inflation: A rise in inflation portrays a situation where the value of money stoops low. When inflation is strong, investors have little extra cash to invest, and businesses suffer as a result of the economy’s overall rising costs. The stock market falls as a result.
- Global Economy: Global economic conditions and political situations are also liable for fluctuations in the nifty and Sensex. If there’s a recession in the global market, it will definitely impact the performance of indices in India.
- Interest Rates: The interest rates and the stock market move oppositely. When the interest rate in the economy rises, lending becomes more expensive. To make up for this, firms reduce their expenses, putting pressure on stock performance. Consequently, indices decline.
The Nifty and Sensex are two of India’s key stock market indicators. Nifty and Sensex both represent the strength of the stock market and share numerous similarities. The fundamental distinction between the Sensex and the Nifty is that the Nifty is designed to assess the performance of 50 top firms, while the Sensex is designed to measure the performance of 30 well-established corporations.
Furthermore, the Sensex index has a base value of 100, whereas the Nifty index has a base value of 1000.
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|Disclaimer: The sole purpose of our financial articles is to provide you with educational and informative content. The content in these articles does not intend any investment, financial, legal, tax, or any other advice. It should not be used as a substitute for professional advice or assistance.|