What is Sensex and Nifty [Difference] & how they are calculated?
It’s very easy, really.
The Nifty and Sensex are indices of the National Stock Exchange and the Bombay Stock Exchange respectively. The Nifty represents 50 companies from different sectors while the Sensex represents 30 of the forerunners of the Bombay Stock Exchange.
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Now, what is the point of such indices?
I’m glad to say i.e.,
It is not possible to track all the companies listed on the stock exchange just to know the condition of the stock market. Hence indices are made to see easy picture across the market.
When Sensex or Nifty goes up, we say that market is good today. When it goes down, we say market is not good today.
A market index is simply a convenient summary of market prices. It helps understand how well the market is performing as compared to previous periods. The movement of the index is determined by the performance of the underlying stocks. If the stock prices fall, the index falls too. Similarly, the index rises if the underlying stocks perform well.
It’s really just a rough measure and easy method of seeing how the market is performing. So, market indices really are very very important.
Let me tell you a little bit about Sensex first.
What is Sensex?
Sensex stands for SENSitive index (first four letters stand for sensitive and last two letters stand for index). We can say that “Sensitive Index” is the long form of Sensex.
More than 5000 companies are listed on the BSE, out of which only 30 companies are present in Sensex.
As I just mentioned, the Sensex is an index consisting of 30 stocks and it calculate the performance of these 30 companies on a real time basis.
The Sensex is actually calculated every 15 seconds and the value of the index is made available in real time.
Yes, really.15 SECONDS.
That’s got to be hard to top, right?
Anyway, let’s get back to the point.
The Sensex was calculated for the first time in 1986. It is used by several investment firms and funds for benchmarking. It represents almost all the sectors well through representative companies.
Companies in Sensex
Here is the list of the companies included in the Sensex (as of January 2017):
Adani, PortAsian, PaintAxis, BankBajaj AutoBharti, Airtel, CIPLA, Coal India
Dr.Reddy’s Lab, GAIL, HDFC,
HDFC Bank, Hero MotoCorp, Hindustan Unilever(HUL), ICICI Bank,
Infosys (Infy), Indian Tobacco company (ITC),
Larsen & Toubro (L&T), LUPIN, Mahindra & Mahindra (M&M),
Maruti Ltd., NTPC, ONGC,
Power Grid, Reliance Industries (RIL), State Bank of India (SBI), Sun Pharma, Tata Motors, Tata steel,
Tata Consultancy Services(TCS),Wipro.
What is Nifty?
Just like the Sensex was introduced by the Bombay Stock Exchange, Nifty is a major stock index in India introduced by the National Stock Exchange.
Nifty comes from an amalgamation of the words ‘National’ and ‘fifty’.
You must have thought nifty came from the English dictionary, right?
Well, now you know better.
Nifty is owned and managed by India Index Services and Products (IISL), which is a wholly owned subsidiary of the NSE Strategic Investment Corporation Limited. It has shaped up as one of the largest single financial products in India, comprising of exchange traded funds, exchange traded futures and options, other index funds and OTC derivatives.
The Nifty 50 covers 22 sectors of the Indian economy and offers investment managers exposure to the Indian market in one portfolio.
The Nifty 50 index is a free float market capitalization index. It was initially calculated on full market capitalization, but later changed to the free float methodology.
Here are Nifty’s top constituents and its sector representation. (as of December 2016)
The method of calculation of the Nifty is very similar to that of the Sensex, but with three basic differences.
The base year is taken as 1995The base value is set to 1000The number of stocks taken is 50
So, as you can see, it’s really very similar to the Sensex.
If you’re interested in the companies included in the Nifty 50, I’ve provided a list below. (as of January 2017)
Companies in Nifty:
ACC, AdaniPorts & SEZ,
Ambuja Cements, Asian Paints, Axis Bank, Bajaj Auto, Bank of Baroda, BHEL, Bharat Petroleum Corporation, Bharti Airtel, Bosch, Cairn India, Cipla, Coal India, Dr. Reddy’s laboratories, GAIL, Grasim Industries, HCL, HDFC, Hero Motocorp, Hindalco Industries, Hindustan Unilever, HDFC, ICICI, ITC, IdeaCellular, IndusInd Bank, Infosys, Kotak Mahindra Bank, Larsen & Toubro, Lupin, Mahindra & Mahindra, Maruti Suzuki, NTPC, ONGC, PowerGrid Corporation of India, Punjab National Bank, Reliance Industries, State Bank of India, Sun Pharmaceuticals, TCS, Tata Motors, Tata Power, Tata Steel, Tech Mahindra, UltraTech Cement, vedanta, wipro, Yes Bank,
Zee Entertainment Enterprises.