Difference between Sensex and NIFTY

Authored by
Team Espresso
September 07 2022
4 min read

Key Differences Between Sensex and Nifty

The Sensex and the NIFTY are the two most important stock indices of India that indicate the strength of the Indian stock market. The two respond to the economic conditions prevailing in the country and reflect their effects on the market through either a rise or fall in value of the various indices, as well as prices of stocks listed on these stock exchanges, every now and then. The rise or fall could be the result of a range of reasons, such as price variations, exchange rates, natural calamities, politics, change in government policy, geopolitical developments, etc. Both the Sensex and the NIFTY are benchmarks for India’s stock market trends. Being the two leading indices, they have certain similarities as well as differences. Before looking at Sensex vs NIFTY, let’s understand a market index.

What is a Market Index?

Market index is a statistical indicator to measure the changes in price and performance in the stock market. An index is created by grouping some stocks based on similar characteristics, such as size of the company, market capitalization or type of industry. The values of these underlying stocks are then used to calculate the market index. A change in the value of the underlying stock leads to an overall change in the market index.

There are indices which account for a single industry, while broad-market indices consider multiple industries. Both the Sensex and the NIFTY are broad-market indices of the Bombay Stock Exchange, now known as BSE, and the National Stock Exchange or NSE, respectively. They function on the principle of free-float market capitalization, and hence, are used to gauge the economic environment in the country.

Let’s now look at Sensex vs NIFTY.

What is Sensex?

The Sensex, introduced in 1986, making it the oldest market index in India, is the benchmark index of the BSE. The word Sensex stands for Stock Exchange Sensitivity Index, and it is constituted of the top 30 companies trading on the BSE. When the Sensex was initially introduced, it followed a weighted market capitalization method to calculate the index. Later in 2003, it shifted to the free-float capitalisation method.

The calculation of Sensex value involves first determining the value of market capitalization by multiplying the number of outstanding shares of a company with their prices. Once that value is derived, the free-float market capitalisation is calculated using the free-flow factor. Lastly, the free-float market capitalisation value of the Sensex is divided by the index divisor of 100 or the base value. The base value here is 100, and the base year, 1978-79.

What is NIFTY?

The NIFTY, introduced in 1996, is the benchmark market index for the NSE. The word NIFTY is a combination of the National Stock Exchange and 50. It reflect the performance and prospects of the top-performing 50 companies trading on the NSE. The NIFTY too, follows the free-float market capitalization method to compute its indices.

The calculation of NIFTY is done by initially determining the level of the index. The level of the index is the aggregate of the market values of the shares included in the index for a specific time period. The base year is 1995. The market capitalization is derived by multiplying the current market price with the number of outstanding shares. Then the equity capital is multiplied with the price and the Investable Weight Factor (IWF) to obtain the free-float market capitalization. The proportion of shares that can be traded in the stock market by investors is indicated by the IWF. Lastly, the current market value is divided by the base market capital and then multiplied by the base value (1,000) to arrive at the final value of the NIFTY.

Sensex vs NIFTY

The first obvious difference between Sensex and NIFTY is that they are the indices of two different stock exchanges, the BSE and the NSE.

The second difference between Sensex and NIFTY is that the number of top-performing companies that constitute the two indices. For the BSE, it is the 30 top companies being traded on the BSE, while for the NSE, it is the top 50 companies being traded on the NSE.

In NIFTY vs Sensex, a third difference is the base number and base year. For the BSE, the base number is 100, and year, 1978-79, while for the NSE, the figures are 1,000 and 1995.

Yet another difference between Sensex and NIFTY is that the Sensex covers 13 different sectors in its index, while the NIFTY comprises 24 sectors, making it a broader market index.