Nifty Vs Sensex: Difference Between Sensex and Nifty 2021

To determine the market trend, the market experts cannot calculate the performance of each listed stock. That would be time-consuming and impossible as thousands of stocks are listed, and by the end of the calculation, the market trends would have changed.
So, how can anyone make a spontaneous decision? With an Index value.
An index picks a sample of listed companies from their respective industries that act as a representative. It is similar to choosing a few apples from the basket and not the entire store, as they would be enough to know if the Apples are overall good. This sample of listed companies is called the Index, and the companies under the sample are called index constituents.
In the Index, stocks are not picked only from a specific industry; instead, they are chosen from all the major sectors. This way, when the performance is evaluated and presented, we are looking at the overall picture and not a specific industry in the stock market.

In India, there are two stock exchanges; the Bombay Stock Exchange and National Stock Exchange. Each stock exchange needs to have an index to measure the performance of the market. Sensex is the Index for Bombay Stock Exchange (BSE), and Nifty is the Index for National Stock Exchange (NSE).

Sensex, aka Sensitive Index, is the Index for the Bombay Stock Exchange. As discussed earlier, an index is a sample of listed companies that act as the representative. Over 6000 companies are listed under the Bombay Stock Exchange, and practically it would be impossible to analyze the performance individually.
To solve this issue, BSE uses Sensex. Sensex picks up 30 companies that are luring, performing, and best for the market. If these companies are performing poorly, then the market trends are down. However, if only these 30 companies are outperforming, then the market trends are bullish.
Now, the question is, how does a company qualify to fall under Sensex?
There is a certain criterion that the Bombay Stock Exchange use to pick companies under Sensex. A few of these criteria are -

• Market Capitalization.
• Trading Frequency.
• High Liquidity.
• Industry Representation.
• Average daily turnover.

Nifty is the Index used by the National Stock Exchange and is made by the combination of National and Fifty (Nifty). Unlike Sensex, Nifty collects the sample of 50 performing and luring stocks to determine the market trends.
Similar to Sensex, Nifty picks stocks from different sectors. Some of these include the stocks from the sectors such as IT, Consumer Goods, financial services, automobiles, telecommunication, and more. Besides, stocks picked under Nifty are those that outperform others.
Criteria to qualify for Nifty are -

• Liquidity
• Float Adjustment
• Domicile

Now that we have basic knowledge of Sensex and Nifty, you may still have a lot of confusion between these indexes. Though they might look similar, there are a few differences that a stock marketer should know.

We now know the basic differences between Sensex and Nifty, but how do you calculate them manually? This involves simple calculations, which makes it easy for you to understand the market trends.

Sensex or sensitive Index is calculated based on the free-float capitalization of all the 30 companies and the base value of Sensex.
Here is a step-by-step process on how to calculate the Sensex -

• The market capitalization of 30 companies is calculated.
• The free Float capitalization of all the companies is estimated and added together to get the total free-float capitalization value.
• Apply the Sensex formula,

Sensex formula = (Free float market capitalization of 30 companies / Base market capitalization) * Base value of the Index.

• The Sensex value is calculated.

Nifty or National Fifty is calculated based on the free float capitalization-weighted method of all the 50 companies. The price of the Index reflects the total market value of all the stocks in the Index relative to the base period on November 3rd, 1995.
Market Capitalization = Current market price * outstanding shares.
The aggregate market capitalization of each scrip in the Index during the base period is the Index’s base market capitalization. During the base period, the market capitalization is equated to an index value of 1000, which is known as the base index value.
Free Float Market Capitalisation = Shares outstanding * Price * Investable Weight Factors (IWF)^
Index Value = (Current Market Value / Base Market Capital) * Nifty Base Index Value (1000)

Conclusion

The basic difference between Sensex and Nifty is the number of companies that are grouped together. Sensex considers 30 companies, and Nifty considers 50 companies for index purposes. However, due to the high bullish nature of BSE, Nifty has been outperformed by Sensex when compared statistically.

• Which is best, Nifty or Sensex?

Both Nifty and Sensex are the Index that helps the stock marketers determine the overall performance trend of the stock market. The only difference is Sensex comprises 30 companies, and Nifty comprises 50 companies. Due to the high number of active stock marketers, high liquidity, and active buying and selling, Nifty is more significant in number than Sensex, but overall, Sensex has been performing better than Nifty.

• What are Nifty and Sensex in simple words?

Nifty and Sensex are benchmark index values for measuring the overall performance of the stock market. Nifty is the Index used by the National Stock exchange, and Sensex is the Index used by the Bombay Stock Exchange.

• What is the basic difference between Sensex and Nifty?

The basic difference between Sensex and Nifty is the number of companies that are grouped as a sample. Sensex considers 30 companies for sampling, while Nifty considers 50 companies.

• Which is the older Sensex or Nifty?

Sensex is older than Nifty and has been outperforming Nifty though the number of companies in Nifty is more.