We know that the stock market is highly volatile. Proper knowledge and research are required before investing.
There are commonly two indexes that help in knowing the nature of the market, time to time. The indexes are Nifty and Sensex.
These indexes help in determining the rise and fall of the market. When the situation of the country, its economy is better, there is a change in the indexes, and corresponding there is a change in the stock market.
Sensex and nifty have many things in common and some differences as well. Knowing these things helps the investor to learn more about the stock market.
In this article, we will go through these things.
We are talking about Index, again and again, so first, let us see what an index is?
The Index is like a report card of the stock market. It tells the performance of the market and helps the investors in making a good trade.
Both the Nifty and Sensex are broad-market indices, and they function on the free-float market capitalization method. Thus we use them and consider them as economic measures.
What are Nifty and Sensex?
Nifty stands for National Stock Exchange. Nifty is a market index of financially sound companies. It was introduced in 1996 by the National Stock Exchange and Nifty50; CNX Nifty are its nicknames.
The primary use of Nifty50 is to benchmark index funds, index services, product limited, a subsidiary of NSE.
1995 is considered the base year for calculating index-float market capitalization, and 1000 is the base value of Nifty50.
On the other hand, Sensex, or sensitive and Index, is the Bombay Stock Exchange market index.
Sensex was introduced in 1986 by the BSE and older than Nifty.
How To Calculate Sensex and Nifty
Nifty represents the top 50 companies’ stock from around 1600 actively traded companies in NSE in 34 sectors.
Whereas Sensex constitutes of top 30 companies.
Calculating Nifty is done according to free-float market capitalization, where the total market value of the constituent is represented with relation to its base period.
To calculate Nifty, some steps are involved.
- At first, we need to calculate market capitalization as per the following formula.
Market capitalization = number of outstanding shares * price of the shares.
- Now we need to determine the free-float market capitalization as follows.
Free-float market capitalization = Market capitalization * Investable weight factor. (IWF are the shares that the company directors do not hold)
- The third is the index value which is calculated as,
Index value = (Current market value/Base market capital) *1000.
Read More: How to Predict the Stock Market
Similarly, for calculating Sensex following steps are involved.
- In the first step, we need to calculate market capitalization as we did for Nifty.
- Now in the second step, we calculate free-float market capitalization as:
Free-float market capitalization = Market capitalization * free-float factor.
- The last step is the Index value.
Index value = Free-float market capitalisation / Index divisor.
Difference Between Sensex and Nifty
Now, we will see what comes out to be the key difference between Nifty and Sensex.
- First is the easy one, the full form. Sensex stands for ‘Sensitive and Index’ while Nifty stands for National and fifty.
- The nicknames of the Sensex are: S&P BSE Sensex. For Nifty, they are Nifty50 and S&P CNX Fifty.
- Nifty is owned and managed by IISL and NSE, while BSE owns Sensex.
- The Base number for Nifty is 1000; for Sensex, it is 100.
- Nifty’s base period is 3rd November 1995, while Sensex’s base period is 1978-79.
- Nifty50 includes the top 50 companies that are traded in NSE. Sensex comprises of top 30 companies of the Bombay Stock Exchange.
- Nifty is broad and covers 24 sectors as compared to 13 done by Sensex.
We have discussed in the article the details of Nifty and Sensex. We have included all the important points that one should know regarding the same.
If you still find it difficult to understand, you can join a good stock market course. Many institutes provide these courses, but I will highly recommend The Thought Tree (T3) as they provide free mentorship to the students. It will help and guide you. I hope you got to know things better and have liked the way of explanation.