The Difference Between Sensex and Nifty can be explained with an Illustration. Nifty Vs Sensex has so much in common. Both Sensex and Nifty and called Indices in a Stock Market. In order to to understand the difference between Sensex and Nifty, you need to first understand the word ‘Index’ which is explained below. This Article on Sensex Vs Nifty comparison was written by CA.Vasant Kukreja.
What is an Index
As per Wikipedia, “A stock index or stock market index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average)”.
This means, To measure performance of overall share markets in India, We need not consider the share values of all listed companies. We choose only few selected Stocks and measure their performance. We believe that the performance of this selected stocks can tell the overall performance of the entire stock markets.
Say for example, i created an Index of 10 Stocks. Now i will select any 10 listed companies and measure their stock fluctuations. Now, if the weighted average of all these ten shares increase, i say that my Index has risen, and vice versa.
Sensex and Nifty Key Differences
In the simplest terms, Sensex and Nifty measure how India’s big stocks are moving. For instance, if the Sensex moves up 1% today, it means that on an average India’s top 30 stocks have become 1% more valuable.
This is found by averaging the stock prices of the 30 companies. If Sensex moved 10% this year, an average investor makes 10% gain (similar to interest they get in the banks).
Both Nifty and Sensex are comprised of companies from various leading Indian sectors like Petrochemical, Information Technology, Banking and Finance etc. They generally select leading companies (in terms of market share) in each Industry and assign them a weight.
|Number of Stocks||30||50|
|Index Formula||Considers more than 40 factors||Considers over 55 factors|
|Actual Formula||(Sum of free float market cap of 30 benchmark stocks) X Index Factor||(Sum of free float market cap of 50 benchmark stocks) X Index Factor|
|Index Factor||100/Market Cap Value in 1978-79||1000/Market Cap Value in the year 1995|
Formula for Index Calculation
The Formulas for Index calculation involves many factors such as:
- Current Market Price of Share
- Historical price
- Total Market capitalisation
- few other similar factors.