Finschool By 5paisa


Difference Between Sensex And Nifty

By News Canvass | Aug 08, 2022

The Bombay securities market (BSE) and the National securities market (NSE) are the 2 most active stock exchanges in India today. With a combined total of over 7,000 enterprises, both exchanges are totally electronic. Every trading day, immeasurable trades happen on each of those exchanges.

The Bombay Stock Exchange’s Sensex, often referred to as the Sensitive Index, could be an exchange index. As previously stated, an index could be a sample of publicly traded companies. The Bombay securities market has over 6000 firms listed, making it almost hard to look at each one’s performance separately.

BSE use Sensex to handle this problem. The Sensex selects 30 companies that are attractive, perform well, and are the most effective for the market. If these businesses aren’t functioning well, the market will suffer as a result. If only these 30 companies outperform, though, the market is trending upward.

The Bombay exchange selects companies for the Sensex index based on a collection of criteria.

  • Market capitalization is one among these factors.
  • Frequency of trading.
  • Liquidity is high.
  • Representation of the industry.
  • Daily average turnover.

The National Stock Exchange’s Nifty Index is created from a combination of National and Fifty stocks (Nifty). In contrast to the Sensex, Nifty gathers a sample of fifty performing and appealing stocks to spot market trends.

Nifty, just like the Sensex, selects equities from many industries. Stocks from industries like IT, commodity, financial services, cars, telecommunications, etc all are among them. Furthermore, stocks chosen under the Nifty are people who beat the market.

To be eligible for Nifty, we need to meet the subsequent criteria:

  • Liquidity
  • Adjusting the Float
  • Domicile

The Sensex, or sensitivity Index, is made using the free-float capitalization of all 30 firms furthermore because of the Sensex’s base value.

The following may be a step-by-step guide to calculating the Sensex. –

  • A total of 30 companies’ market capitalizations is calculated.
  • The overall free-float capitalization value is calculated by adding the free-float capitalization values of all the businesses.
  • Use the Sensex formula: (Free float capitalisation of 30 businesses / Base market capitalization) * Index base value.
  • The value of the Sensex is calculated.

The Nifty or National Fifty is decided by employing a free float capitalization-weighted formula that takes under consideration all 50 enterprises. The Index’s price reflects the whole value of all the stocks within the Index as of November 3rd, 1995, as compared to the bottom period.

Market capitalization is calculated by multiplying this value by the number of outstanding shares. The Index’s base market capitalisation is that the sum of the market capitalisation of every scrip within the Index during the bottom period. The capitalisation is loving an index value of 1000 during the bottom period, which is understood because the base index value.

Market capitalisation in free float = number of shares outstanding Index Value = (Current value / Base Market Capital) * Nifty Base Index Value * Price * Investable Weight Factors (IWF) (1000)

The number of firms bundled together is the main difference between Sensex and Nifty. For index purposes, the Sensex examines 30 firms, whereas the Nifty considers 50. compared statistically, however, Nifty has been outperformed by Sensex because of BSE’s high bullish propensity.

Frequently asked Questions (FAQs)

The choice between Nifty and Sensex depends on an individual’s investment objectives and preferences. Nifty provides a broader market representation, while Sensex is more historically significant. Investors should assess their risk appetite, sector preferences, and investment strategy before deciding which index is best for them.

The Sensex is the older index, with its base year dating back to 1978–1979, while the Nifty’s base year is 1995. To evaluate a company’s ability to pay dividends or repurchase shares.

The Sensex and NIFTY 50 comparison depends on the investor’s perspective. The Sensex is widely recognized and represents a smaller sample of established companies. NIFTY 50, on the other hand, provides a broader market representation by including 50 companies. Investors should consider their investment goals and preferences to determine which index suits them better.

Nifty stands for the National Stock Exchange Fifty. It represents the top 50 companies listed on India’s National Stock Exchange (NSE) stability.

SENSEX stands for the Sensitive Index, which represents the performance of 30 well-established companies listed on the Bombay Stock Exchange in India.

The difference in levels between the Sensex and Nifty can be attributed to various factors, including the selection criteria, composition, and calculation methodologies. The specific weights assigned to different stocks and the varying coverage of sectors contribute to the value disparity.

View All