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Sensex and Nifty both are indices of the Indian stock market. One is the stock index of BSE while the other one is of the NSE.
What is Index
If someone would ask you, “How the Indian stock market is performing?”
You wouldn’t answer like, “Reliance Industries had this much share price yesterday but it went up today to this level, TCS is doing well in its sector, Yes bank is a complete mess”. i.e. you do not tell the statistics and the data to the questioner about every stock else it’ll be very hectic and next to impossible to keep a record of thousands of listed companies.
So that you can easily answer the question, we’ve indices.
Index or Stock index is the statistical measure that shows changes taking place in the share market.
An Index is created by grouping the stocks of the companies listed on the stock exchange according to the specific criteria (which are discussed later in the article).
Indices in India have market capitalisation weightage instead of price weightage.
1. Price weightage: The companies with high share prices. are chosen and grouped to form an index. Stocks with higher prices have greater weightage in the index than stocks with lower share prices. 2. Market capitalisation weightage: Here, we select the stock of the companies which have the highest/largest market cap in their respective sectors and, as obvious, give weightage to the stocks which have a high market cap.
Well, we’ve so many indices but the Sensex and the Nifty are the important ones as they also act as an economic indicator.
How to calculate an Index
The following formula will easily calculate the index which you want to find out:
Terms in the above formula: 1. Free float market capitalisation = no. of free floated shares * share price 2. Base market capitalisation: The aggregate market capitalisation of each stock in the index during the base year.
Rebalancing of Index
The stocks which are in the index at this point would not be in the index for a lifetime. If they will fulfil the criteria of selection in the index, the stocks will remain in the index else they will be removed by the index committee and the new stocks which will pass the selection criteria will take place in the index.
The selection of the new stocks and removal of the stocks, which aren’t fulfilling the criteria, from the index is known as the rebalancing of indices.
The index committee rebalances the index on a semi-annual basis i.e. every 6 months.
Exchange or committee gives an intimation 4 weeks before the change/rebalancing.
What is Sensex
- Sensex is the index of BSE.
- It stands for “Sensitive Index”.
- It is also known as “S & P BSE SENSEX”.
- It comprises 30 stocks.
- It was formed in 1986.
- The term ‘Sensex’ was coined by Mr Deepak Mohoni in the year of 1989.
- The base year of Sensex is 1978-79.
- Its base value is 100 (points).
- It covers 13 industrial sectors.
Selection criteria for stocks in Sensex
As you know, Sensex is a market-cap-weighted Index but it also has other criteria which are as follows:
- Market Capitalisation
By full market capitalisation, the stock should be in the Top 100 list of highest market cap.
The weight of each stock based on free-float market capitalisation should be at least 0.5% of the Index.
- Trading frequency
The stock should’ve been traded on BSE on every trading day for the last 1 year.
- Average Daily Trades
The stock should be among the Top 150 companies listed by the average number of trades per day for the last 1 year.
- Listed History
The stock should have a listing history of at least 1 year on BSE.
- Track Record
In the opinion of the Index Committee, the company should have an acceptable track record.
How to calculate Sensex
Rebalancing of Sensex
- The rebalancing of Sensex is done by the “BSE Index Committee”.
- Sensex rebalances its portfolio in June and December.
What is Nifty
- Nifty is the index of NSE.
- It stands for “National Fifty”.
- It is also known as “Nifty 50”.
- It comprises 50 stocks.
- It was formed in 1996.
- The term ‘Nifty’ was coined by NSE on 21st April 1996.
- The base year of Sensex is 1995-96.
- Its base value is 1000 (points).
- It covers 24 industrial sectors.
Selection criteria for stocks in Nifty
The company must be domiciled/located in India and traded (listed & traded and not listed but permitted to trade) at the National Stock Exchange (NSE).
- Eligible Securities
Stocks of the “NIFTY 100” index that are available for trading in NSE’s Futures & Options segment are
eligible for inclusion in the NIFTY 50 index.
- Float-Adjusted Market Capitalization
Companies will be eligible for inclusion in the NIFTY 50 index provided the average free-float market
capitalisation is at least 1.5 times the average free-float market capitalization of the smallest stock in
- Listing History
A company that comes out with an IPO is eligible for inclusion in the index if it fulfils the normal
eligibility criteria for the index – impact cost, float-adjusted market capitalization for 3 months
instead of 6 months.
- Trading Frequency
The stock should’ve been traded on NSE on every trading day for the last 6 months.
How to calculate Nifty
Rebalancing of Nifty
- This is the responsibility of NSE Indices ltd. (formerly known as IISL; India Index Services & Products Limited)
- The Nifty 50 Index rebalances its portfolio on March 31st and September 30th.
Difference between Sensex and Nifty
Index of BSE
Index of NSE
Index of 30 stocks
Index of 50 stocks
Created in 1986
Created in 1996
Base year: 1978-79
Base year: 1995-96
Base value: 100
Base value: 1000
Covers 13 sectors
Covers 24 sectors
The term 'Sensex' was coined by Deepak Mohani in 1989
The term 'Nifty' was coined by NSE in 1996
Rebalancing of stocks is done by 'BSE Index Committee'
Rebalancing is done by 'NSE Indices ltd.'
Why Sensex is higher than Nifty
There could be two answers to this question:
- The difference in the base year; Since Sensex (1986) is older than Nifty (1996), the Sensex had some value at the time when Nifty was formed as it had been 10 years since Sensex was formed.
- Sensex comprises 30 stocks while Nifty has 50. The Sensex is more niche, and in a bullish market, the top companies tend to push their index value higher. In contrast, the Nifty is broad as it has 50 companies in the index. Therefore, in a bullish market, the increase in the value of Nifty is less than that of Sensex because 20 companies are more in it and its movement is also decided by these 20 companies. , Hence the value of Nifty is less than Sensex.
Is Sensex better than Nifty?
How can one decide which one is better and which one is worse than the another? Both the indices have their specialities or you can say both have their pros and cons.
The list of what one index has and the another does not is given below; decide for yourself:
- Nifty is the index of NSE and it provides high liquidity i.e. you would find more buyers and sellers here than the BSE.
- NSE has high liquidity but the number of companies listed in BSE is more which means all the stocks which are part of NSE are part of BSE as well.
- You can’t invest in Sensex directly but you can in Nifty as nifty is available there as a product in the futures and options segment.
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