We keep coming across news such as the Sensex index has gained 1000 points or the Nifty index dropped 500 points, causing fears among investors.
But, exactly, what do the terms “market” and “Sensex” mean? Why is it expressed in points?
Sensex and Nifty- Whether you follow the stock market in India closely or invest in it, you’ve almost certainly come across these two terms dominating the headlines of financial portals, business news networks, and pink publications.
Before we dive deep into our core discussion topic- Nifty, Sensex role in stock market of India; let’s understand what is the difference between Sensex and Nifty.
Curious Enough? Let’s break down the Sensex and Nifty for you
The Sensex and the Nifty are the two national stock market indices in India.
The Sensex and Nifty are essential measurements and data that stock traders use to determine market trends daily. But what exactly is the Sensex or the Nifty? What is the difference between Nifty and Sensex, and, more importantly, how are they calculated? To answer all of the questions, we must first understand the concept of the Index.
What exactly is an Index?
As per the latest SEBI data, there are over 8600 companies listed on NSE & BSE.
Market experts won’t be able to calculate the performance of each listed stock to determine the market trend. That would be time-consuming and impracticable. Moreover, market trends would have altered by the time the calculation was completed.
So, how can anyone decide on the spur of the moment? With the use of an Index value.
An index selects a representative sample of publicly traded companies from their respective industries. It’s like selecting a few eggs from the basket rather than the entire batch because that would be sufficient to determine whether the eggs are generally decent.
The Index is a sample of publicly traded companies, and the companies that make up the sample are known as index components.
Stocks in the Index are chosen from all key sectors, rather than just one. When evaluating performance, we look at the bigger picture rather than a single industry in the stock market.
What is the difference between the Sensex and the Nifty?
The Bombay Stock Exchange and the National Stock Exchange are the two stock exchanges in India.
Each stock exchange needs an index that measures the market’s performance.
Sensex is the Index for Bombay Stock Exchange (BSE), and Nifty is the Index for National Stock Exchange (NSE).
What is Sensex?
The Sensex, commonly known as the BSE 30, is a market index consisting of 30 well-known and financially stable companies registered on the Bombay Stock Exchange (BSE).
- An “Index Committee” selects and reviews the 30 companies that make up the Sensex regularly.
- Academicians, mutual fund managers, finance journalists, independent governing board members, and other financial market participants commonly make up the “Index Committee.”
- Trading frequency, market capitalization, listing history, industry to which the stock belongs, and other characteristics are used to choose the firms.
If the Sensex falls, it means that the stock prices of most of the BSE’s big stocks have dipped as well. If the Sensex rises, it indicates that most of the BSE’s major stocks gained during the period.
Assume the Sensex is currently at 57,130. If the Sensex falls to 56,600 tomorrow, it signals that the majority of the 30 companies are underperforming, or their stock prices are declining.
What is Nifty?
In contrast to Sensex, Nifty gathers a sample of 50 performing and appealing stocks (Also known as NIfty50) to identify market trends.
Nifty, like the Sensex, selects equities from many industries. The top 50 stocks (Nifty50) are selected from a variety of industries, including information technology, financial services (Niftybank), consumer products, telecommunications, and cars.
Companies must meet the following standards and criteria to be considered for inclusion in the Nifty 50:
Liquidity
The stock should have traded at a cost of 0.50 percent or less over the last six months.
Float Adjustment
The company’s market capitalization must be at least twice the current smallest index composition when adjusted for float.
Domicile
The company should be based in India and listed on the NSE.
Nifty- Sensex Role in Stock Market of India
When we talk about Nifty, Sensex’s role in the stock market of India; Sensex and Nifty are two national stock market indicators used to evaluate the stock market’s overall performance.
BSE uses the Sensex index, whereas NSE uses the Nifty index. The up and down movement of these indexes reflects the movement of the index’s portfolio stocks and is frequently used to assess market sentiment.
The Nifty and Sensex are also widely used as performance benchmarks for mutual funds. Some mutual fund companies use the Nifty as their benchmark index, while others may use the Sensex. Several elements influence the decision, including the fund house’s sectoral or thematic strategies, asset allocation, investment target, and so on.
Frequently asked question
Is it better to invest in the Nifty or the Sensex?
Both the Nifty and the Sensex are indexes that help stock traders determine the stock market’s overall performance trend. The main distinction is that Sensex has 30 companies whereas Nifty has 50.
Nifty is more popular than Sensex because of the large number of active stock marketers, strong liquidity, and active buying and selling, although Sensex has outperformed Nifty overall.
In basic terms, what are Nifty and Sensex?
The benchmark index values for evaluating the overall performance of the stock market are Nifty and Sensex.
The National Stock Exchange uses the Nifty Index, whereas the Bombay Stock Exchange uses the Sensex Index.
What is the main difference between the Sensex and the Nifty?
The key distinction between Sensex and Nifty is the number of companies included in the sample. For sampling, Sensex evaluates 30 companies, while Nifty considers 50.
Which index is older, the Sensex or the Nifty?
Sensex is older than Nifty and has outperformed it despite Nifty’s larger number of companies.
