Difference Between Sensex and Nifty

Key takeaways

• The Sensex is the benchmark index of the Bombay Stock Exchange.
• It was introduced in 1986, making it the oldest stock index in India.
• The Nifty is the benchmark index of the National Stock Exchange.
• It was introduced in 1996, so it's relatively newer than the Sensex.
• "Sensex" combines "sensitive" and "index."
• "Nifty" combines "national" and "fifty."

The Sensex and Nifty are the two most prominent indices in the Indian stock market, serving as benchmarks for evaluating the performance of other indices and individual stocks. They play a pivotal role in helping investors gauge market trends and make informed decisions. While the two indices share similarities, understanding their differences is crucial for a comprehensive grasp of the stock market's dynamics. Before delving into their specific features and contrasts, it is essential to first understand what a stock market index entails.

What is Sensex?

The Sensex, short for the Sensitive Index, is a stock market index that represents the performance of the Bombay Stock Exchange (BSE). It is composed of 30 well-established and financially sound companies from diverse sectors. These 30 companies are carefully selected to provide an overview of the Indian stock market's performance. Launched on January 2, 1986, the Sensex has become a prominent benchmark for measuring the overall movement of the market.

How to Calculate Sensex?

The Sensex is determined by adding up the closing prices of the top 30 stocks included in the index, each multiplied by its relevant weight. These weights are determined by dividing the free-float market capitalisation of each stock by the base market capitalisation and then multiplying it by the index's base value.

The formula for Sensex:

Sensex = Free float market capitalisation of 30 companies / Base market capitalisation * Base value of the index.

For Sensex calculation, the base year to calculate Sensex is 1978-79 and the base value is static, Rs. 2501.24 crore is to be used as the base market capitalisation and a value is 100 is taken as base value

So, the final formula for calculation Sensex is:

Sensex = Free float Market Capitalisation of 30 firms / 25041.24 crores * 100

What is Nifty?

The Nifty, officially known as the Nifty 50, is another major stock market index in India. As the name suggests, it comprises 50 well-established and liquid stocks from different sectors. The Nifty was introduced by the National Stock Exchange (NSE) on April 22, 1996, to provide a broader representation of the equity market's performance.

How to Calculate Nifty?

The NIFTY index utilizes a methodology that is weighted according to the free-float market capitalisation. This implies that each stock's weight in the index is determined by its market capitalisation, but only the shares that are publicly available for trade are considered. These publicly available shares are known as free-float shares.

Formula for calculation NIFTY is:

NIFTY = Current Market Value / Base Market Capital * 1000

For NIFTY calculation, the base period is 3rd November 1995, the base value is considered as 1000 and the base capital stands at Rs. 2.06 trillion.

The Free Float Market Capitalisation is calculated as follows:

Free float market capitalisation = Share Price * Equity Capital * Investable Weight Factor (IWF)

Difference between Sensex and Nifty

The table below will give you a clear idea of the differences between Sensex and Nifty:

Aspect	NIFTY	Sensex
Composition	Comprises top 50 companies	Comprises top 30 companies
Exchange	National Stock Exchange (NSE)	Bombay Stock Exchange (BSE)
Base Year	1995	1978-79
Base Value	1000	100
Sector Representation	Represents a broader range of sectors.	Represents a narrower range of sectors.
Market Influence	Reflects the overall sentiment and trends of the broader market.	Reflects the overall sentiment and trends of the market, but with a smaller sample size.
Impact of Large Companies	The performance of large companies has a relatively higher impact due to the number of constituents.	The performance of large companies carries more weight due to the limited number of constituents.
Overall Significance	Widely recognised and often referred to as a benchmark for Indian equity markets.	One of the oldest and most prominent stock market indices in India.
Example ETF/ Index Fund	NIFTY ETFs or index funds aim to replicate NIFTY's performance.	Sensex ETFs or index funds aim to replicate Sensex's performance.

 

Factors that affect the performance of an index

Let us take a look at the various factors that can influence the performance of an index:

1. Economic conditions

Economic indicators, such as the country’s GDP, rate of inflation, and unemployment, mirror the country's overall economic growth and stability. When it comes to the performance of an index, these economic conditions have a significant effect. A high GDP equals high consumer spending and better business activities. This, in turn, results in improved company profits and share prices.

2. Company performance

Another factor that can affect index performance is the individual companies' financial health and performance. Elements such as management changes, earnings reports, and new launches also affect the index's performance. Positive results can result in increased stock prices and vice versa.

3. Global market trends

The past few years have shown how international trends can affect the domestic stock market. Pandemics, political instability, conflicts, and natural disasters can cause the market to perform badly, subsequently impacting indices.

4. Interest rates and inflation

Rising inflation reduces everyday expenses, leading to reduced company profits. Banks respond to growing inflation by increasing interest rates, which further increases a company’s debt burden. The cycle continues with a direct effect on corporate profits and stock performance. Conversely, lower interest rates encourage borrowing and spending, which results in increased company earnings and potentially higher stock prices.

5. Government policies

When the government advocates positive policies on taxation, regulations, and economic reforms, it can impact the profitability of companies. In the past, it was seen that when RBI brings modifications to the changes in cash reserve ratios and open market operations, it affects the liquidity and performance of the share market.

Companies listed on Nifty and Sensex

Listed below are the Nifty 50 companies.

Serial	Stock name	Sub-sector
1	Tata Consumer Products Ltd.	Tea & Coffee
2	SBI Life Insurance Company Ltd.	Insurance
3	Wipro Ltd.	IT Services & Consulting
4	Cipla Ltd.	Pharmaceuticals
5	ITC Ltd.	FMCG – Tobacco
6	Adani Enterprises Ltd.	Commodities Trading
7	Tata Consultancy Services Ltd.	IT Services & Consulting
8	UPL Ltd.	Fertilisers & Agro Chemicals
9	Axis Bank Ltd.	Private Banks
10	State Bank of India.	Public Banks
11	Bharat Petroleum Corporation Ltd.	Oil & Gas – Refining & Marketing
12	Reliance Industries Ltd.	Oil & Gas – Refining & Marketing
13	Eicher Motors Ltd.	Trucks & Buses
14	Tata Steel Ltd.	Iron & Steel
15	Hindustan Unilever Ltd.	FMCG – Household Products
16	Housing Development Finance Corporation Ltd.	Home Financing
17	Kotak Mahindra Bank Ltd.	Private Banks
18	Tech Mahindra Ltd.	IT Services & Consulting
19	HDFC Life Insurance Company Ltd.	Insurance
20	NTPC Ltd.	Power Generation
21	Grasim Industries Ltd.	Cement
22	Oil and Natural Gas Corporation Ltd.	Oil & Gas – Exploration & Production
23	JSW Steel Ltd.	Iron & Steel
24	Bajaj Finserv Ltd.	Insurance
25	Adani Ports and Special Economic Zone Ltd.	Ports
26	Tata Motors Ltd.	Four Wheelers
27	Asian Paints Ltd.	Paints
28	HDFC Bank Ltd.	Private Banks
29	Nestle India Ltd.	FMCG – Foods
30	Bharti Airtel Ltd.	Telecom Services
31	Infosys Ltd.	IT Services & Consulting
32	IndusInd Bank Ltd.	Private Banks
33	ICICI Bank Ltd.	Private Banks
34	Maruti Suzuki India Ltd.	Four Wheelers
35	Bajaj Finance Ltd.	Consumer Finance
36	Titan Company Ltd.	Precious Metals, Jewellery & Watches
37	Mahindra and Mahindra Ltd.	Four Wheelers
38	HCL Technologies Ltd.	IT Services & Consulting
39	Coal India Ltd.	Mining – Coal
40	Bajaj Auto Ltd.	Two Wheelers
41	Hero MotoCorp Ltd.	Two Wheelers
42	Hindalco Industries Ltd.	Metals – Aluminium
43	Britannia Industries Ltd.	FMCG – Foods
44	Dr. Reddy’s Laboratories Ltd.	Pharmaceuticals
45	Divi’s Laboratories Ltd.	Labs & Life Sciences Services
46	Larsen & Toubro Ltd.	Construction & Engineering
47	UltraTech Cement Ltd.	Cement
48	Power Grid Corporation of India Ltd.	Power Transmission & Distribution
49	Apollo Hospitals Enterprise Ltd.	Hospitals & Diagnostic Centres
50	Sun Pharmaceutical Industries Ltd.	Pharmaceuticals

Listed below are the Sensex 30 companies.

Serial	Stock Name	Sub-Sector
1	Asian Paints	Paints
2	M&M	Auto
3	Axis Bank	Banking
4	Kotak Mahindra Bank	Banking
5	Titan	Consumer Durables
6	Ultratech Cement	Cement
7	Tech Mahindra	Software
8	Tata Steel	Steel
9	TCS	Software
10	Power Grid	Power
11	SBI	Banking
12	HDFC Bank	Banking
13	Sun Pharma	Pharma
14	Nestle	Food Beverages
15	Bajaj Finserv	Finance
16	IndusInd Bank	Banking
17	HCL Technologies	Software
18	HUL	FMCG
19	HDFC	Fin. Institutions
20	Maruti Suzuki	Auto
21	ICICI Bank	Banking
22	Infosys	Software
23	Reliance Ind.	Energy
24	Bajaj Finance	Finance
25	Dr. Reddys Lab	Pharma
26	L&T	Engineering
27	Wipro	Software
28	ITC	FMCG
29	Bharti Airtel	Telecom
30	NTPC	Power

Which is better? Nifty or Sensex?

Nifty and Sensex are the two prominent market indices in the country. Nifty vs. Sensex has been an ongoing debate for many years. Sensex, better known as the Bombay Stock Exchange (BSE), is among the oldest stock exchanges in the world. A large pool of stocks is listed and traded here.

NSE, on the other hand, is a much bigger player. A leader in the derivatives segment, there are not only more companies in the NSE, but it also enjoys far more trading volumes while offering higher liquidity than the Sensex.

Beginner investors are often suggested to start their investment journey from the Sensex. NSE Nifty is the way forward for those who wish to trade in derivatives F&O.

The NSE is a much broader market index with over 24 sectors. The Sensex, on th other hand, covers 13 sectors. NSE is more prominent with its numbers; the credit goes to the much bigger number of active stock traders, which brings in aggressive buying and selling and strong liquidity. Though both indices have shown similar returns historically, Sensex has traditionally performed better.

Conclusion

In conclusion, the Sensex and Nifty are essential tools for investors, providing insights into the Indian stock market's performance. While they share the common goal of tracking market trends, their differences in composition, calculation, and impact make them unique indicators of economic health and market behaviour.

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