Difference Between Sensex and Nifty

Sensex and Nifty are the 2 most important indices in the Indian stock market. They are the benchmark indices that most of the other indices and stocks compare their performance with. 

Nonetheless, there are specific points of differences between Sensex and Nifty and similarities that investors need to learn to understand the stock market more comprehensively. However, before diving into the details of Nifty vs Sensex, let’s first understand what an index is.

Understanding Nifty and Sensex

• Nifty

Nifty stands for National Stock Exchange Fifty and is the equity benchmark index of the National Stock Exchange (NSE). 

One of the most critical points of difference between Sensex and Nifty is the number of stocks each index comprises. Nifty 50 includes stocks from the top 50 of nearly 1600 companies actively traded in NSE across 24 sectors.

These 50 stocks account for nearly 65% of the total free-float market capitalisation of the index. 

• Sensex

Sensex is the market index of the Bombay Stock Exchange (BSE). It is also known as S&P BSE Sensex. 

Another critical point in illustrating Sensex vs Nifty is that Sensex is the older of these two indices. The Bombay Stock Exchange introduced Sensex  in 1986 when it followed a weighted market capitalisation method. Later in 2003, Sensex migrated to the free-float market capitalisation method. The base value for calculating Sensex is 100 .

Another critical difference between Sensex and Nifty is that 1978-79 is the base year considered for its calculation. 

How to Calculate Nifty?

The Nifty calculation takes place as per the free-float market capitalisation weighted methodology. Thus, it represents the total market value of the constituents in Nifty in relation to the base period, i.e. 3rd November 1995. 

To calculate the Nifty index, firstly one needs to derive the market capitalisation of the constituents by multiplying the number of shares with their prices.

Secondly, to determine the free-float market capitalisation, one needs to multiply the Investable Weight Factor (IWF) with the original market capitalisation. IWF represents the proportion of shares that investors can freely trade in the stock market. In other words, it is the percentage of shares not held by directors or promoters of a company.

Lastly, one needs to calculate the index value by dividing the current market value by base market value and then multiplying it by the base index value (1000). 

Note: The base market capital of Nifty is Rs.2.06 trillion.

This index denotes the returns an investor can earn if they invest in that specific portfolio. 

How to Calculate Sensex?

Sensex follows a methodology similar to that of Nifty. Sensex is calculated based on a free-float market capitalisation method. Therefore, parallel  to the Nifty, this index is also reflective of the total market value of the 30 constituents in relation to its base period, i.e. 1978-79. 

For calculating Sensex, it is first required to calculate the market capitalisation of each company applying the same formula as mentioned above. Secondly, to calculate the free-floating market capitalisation one needs to multiply the derived market capitalisation with a free-float factor. 

Lastly, to compute Sensex, the free-float market capitalisation of those 30 companies shall be divided by the index divisor of 100. 

This index divisor is what establishes the relationship between the base period and the current period. Furthermore, that divisor also facilitates comparison across different periods. 

Similar to Nifty, Sensex also reflects the returns one could earn by investing in that portfolio. Therefore, investors could weigh Sensex vs Nifty returns. 

What is the Difference Between Sensex and Nifty?

Despite the similarities they share by virtue of being broad-market indexes, there are a few pointers to Sensex vs Nifty that one ought to note. 

This following table enumerates the differences between Sensex and Nifty.