Understanding the difference between the Sensex and The Nifty

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The Sensex and the Nifty are the two most popular stock indices in India. Today, we can say with some certainty that almost all of the investors track these indices if they want to see how the markets have performed during a period.

Understanding the difference between the Sensex and The Nifty
Here is a brief difference between the Sensex and the Nifty. Both the Sensex and the Nifty are popular, though being a little older, the Sensex may be a slightly more popular guage. The Nifty is more broad based.

Stocks that form the Sensex and the Nifty are almost common, but, it must be remembered that select Nifty stocks do not find place in the Sensex, because the Nifty has 50 stocks and the Sensex has 50.

Some of the stocks that do not find a place in the Sensex, but are part of the Nifty include stocks like Powergrid, Tata Power, Ultratech Cement, Zee, Punjab National bank, ZEE, Kotak Mahindra Bank, Bank of Baroda, HCL Tech, Cairn India, Bosch etc.

See Sensex Top Gainers and Losers here

Should You Track The Sensex Or The Nifty?

One can track both the Sensex and the Nifty. The Nifty is more broad based and many individuals track the same because of the Nifty Futures, which is quite popular for trading in options and futures. The Sensex comprises of 30 large cap shares and is a very popular benchmark.

Most of the news reports these days mention both the Nifty and the Sensex closing. One good thing of the Sensex is the free float capitalization method that it uses. So, it takes into account only shares that are actually available for trading and not the entire shares that are outstanding for the purpose.

To read more on capitalization click here

You can invest in both the Sensex and the Nifty through the derivatives method.

When arriving at the method for companies that make up the Sensex and the Nifty rigorous methods are used. Apart from that those managing the indices have to ensure that there is a balanced representation of all industries. At the moment the weight of financials in the indices is slightly higher as compared to say capital goods.

Both the indices are used for derivative trading and benchmarking fund portfolios. Comparison for portfolio performance is always done in terms of returns indices have generated.

For example, a fund manager might want to benchmark the performance of returns of his fund with the indices. If his fund has generated a return of 10 per cent in the last one year vis a vis 6 per cent Sensex returns in the last one year, we can say is fund has beaten the Sensex performance.

Sensex Nifty
An indice of the Bombay Stock Exchange An indice of the National Stock Exchange
Correct name is S&P BSE Sensex Correct Name is S&P CNX Nifty
Sensex comprises of 30 large cap shares Comprises of 50 large cap shares
The Sensex is managed by the BSE The NIFTY index is owned and managed by the India Index Services and Products Ltd
Sensex is based on free float capitalization method The Nifty is based on outstanding shares capitalization method
The Sensex was constructed in 1986

The Nifty was constructed in the mid 1990s

Read more about: sensex, nifty
Story first published: Tuesday, June 23, 2015, 10:38 [IST]
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