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Difference Between Sensex and Nifty

  • Jan 12, 2024

Two names that invariably surface in this context are Sensex and Nifty. These indices are India's stock market performance barometers and significantly sway investment decisions. In the section below, we'll understand the differences between sensex nifty. So, read on to learn about them.

An Overview of Sensex

The Sensex is like India's version of the Dow - it’s a stock market index that tracks the shares of the country’s biggest powerhouses across major industries. It shows how some of India’s corporate giants like TCS, Reliance, Infosys, ITC, and HDFC are faring. So when you hear that the Sensex is up or down, you know that investors are betting on how these influential companies will perform – potentially impacting sectors from tech services to energy to consumer goods. Moreover, you must keep a check on the share price of Sensex.

An Overview of Nifty

Nifty, officially named the Nifty 50, entered the scene in 1996 courtesy of the National Stock Exchange (NSE). The top 50 companies listed in NSE mirror Sensex in its criteria selection. Like the Sensex, the Nifty tracks the performance of 50 of the largest and most actively traded companies listed on the NSE across all major industries. It's like the NSE's flagship index.

Difference between Sensex and Nifty

1. Stock Exchange Allegiance

Sensex is intrinsically linked with the Bombay Stock Exchange (BSE), an establishment with a rich history. It primarily serves as a benchmark for the BSE. Nifty finds its roots in the National Stock Exchange (NSE), a relative newcomer to the Indian stock exchange arena. It proudly carries the mantle of being NSE's benchmark index. Moreover, you can find out about current Sensex and Nifty updates online.

2. Composition Quirks

The Sensex 30 companies are listed on the BSE. This selection hinges on various factors, including market capitalisation, trading frequency, and industry representation. Nifty 50 casts a broader net, accommodating the top 50 companies listed on the NSE and adhering to criteria similar to Sensex's.

3. Selection Criteria Insight

Sensex constituents must meet specific market capitalisation, liquidity, and sectoral representation criteria. Regular reviews ensure that companies align with these criteria. Like Sensex, Nifty also employs the free-float market capitalisation methodology. This means that the market capitalization of each constituent company is adjusted for the shares held by the promoters, government, and other entities that are not available for trading.

4. Methodology Magic

Sensex utilizes the free-float market capitalization methodology to calculate its index value, which adjusts market capitalization for non-tradable shares. Nifty follows the free-float market capitalization methodology, ensuring that only the tradable shares influence its index value. The current Nifty share prices BSE are found on various financial news platforms.

5.  Sectoral Sway

Over the years, Sensex has developed a bias towards traditional sectors such as finance, manufacturing, and energy due to its historical legacy. Nifty offers a more contemporary outlook, featuring sectors like information technology and services, capturing the evolving facets of India's economy.

6. Performance Perspicacity

Both indices track distinct sets of companies, but their performance can fluctuate substantially. Investors often mix their portfolios with Sensex to gauge their standing in the BSE-listed stock universe. Nifty is a benchmark for stocks, mutual funds, and investment portfolios that align more closely with the NSE.

7. Geographical Gaze

Hailing from the bustling financial hub of Mumbai, Sensex can be viewed as a representative of companies in western India. Nifty's NSE affiliation grants it a more expansive geographical spectrum, reflective of India's stock market on a national scale.

Also Read: Sensex Meaning: What is Sensex?

How to Choose Between Sensex and Nifty?

The decision to choose among these two hinges on several factors that ought to align with your investment objectives and portfolio composition:

  1. Portfolio Composition: If your investments predominantly encompass BSE-listed companies, Sensex provides a more relevant benchmark. Conversely, if you lean towards NSE-listed stocks, Nifty becomes your compass.
  2. Diversification Dynamics: To gauge the overall health of the Indian stock market, Nifty emerges as the favoured choice, owing to its broader sectoral representation. It captures the nuances of both traditional and burgeoning sectors.
  3. Geographical Affinity: The geographical focus of your investments could sway your preference. Sensex leans towards western India, while Nifty offers a more encompassing view of the country.
  4. Historical Inclinations: Some investors and analysts may have historical data and charts aligning with Sensex or Nifty. Familiarity with one index might influence their choice.
  5. Expertise in Specific Industries: When it comes to the stock market, it makes sense to play to your strengths. If you know and follow a particular industry, choose an index with many companies you already understand. If you work in IT and know that space inside out, the Nifty index would be a smart pick - it includes major Indian tech players like Infosys, TCS, Tech Mahindra, and more.

The Bottom Line

Nifty BSE Sensex plays a pivotal role in unravelling the complexities of the Indian stock market. While sharing common ground, they diverge in their composition, methodology, and sectoral representation. The choice between Sensex and Nifty should be a well-informed decision aligned with your investment goals and holdings. Conduct thorough research, diversify your portfolio, and take professional advice to navigate the dynamic world of stock markets effectively.

Team Sharekhan
by Team Sharekhan

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