Why Sensex Has More Points than Nifty 50? – Explained for Indian Investors

If you are a beginner who tracks the Indian equity markets, you would have likely noticed the Sensex having more points than the Nifty 50. This vast gap often confuses many new investors. To understand why there is such a huge difference between the Nifty and Sensex, we need to delve deep into these two indices. 

In this article, we will explore the composition and calculation methods to ensure you grasp the practical implications for your portfolio.

What are Sensex and Nifty 50?

Both the Sensex and the Nifty 50 play very important roles in the Indian financial ecosystem. Let us quickly look into what they are. 

Sensex

The Sensex is the benchmark index of the Bombay Stock Exchange (BSE). It features 30 well-established and financially sound companies. It serves as a pulse for the domestic stock market. 

If you are wondering how Sensex is calculated, the index uses a unique method known as free-float market capitalisation. This methodology ensures that the index reflects only the market value of shares available for trading rather than the total outstanding shares in the index’s entities.

Nifty 50

The Nifty 50 functions as the primary index for the National Stock Exchange (NSE). It includes 50 blue-chip stocks from various sectors and offers a broader view of the economy.

Similar to the Sensex, the Nifty 50 also uses the free-float market capitalisation method for value calculation. However, it uses a different base value and scaling factors. As a result, the Nifty 50’s value is lower compared to the BSE’s benchmark.

Difference Between Nifty and Sensex

We have compiled a comparative table to help you better understand the difference between Nifty and Sensex.

The difference between Nifty and Sensex values arises because the BSE index’s base year is 1979, compared to the NSE index’s base year of 1995. The extended history of the Sensex has allowed its value to compound significantly higher than the Nifty.

How Sensex is Calculated?

As an investor, it is crucial for you to know how the Sensex is calculated. The Bombay Stock Exchange uses a special mathematical formula to arrive at the index’s value.    

Sensex Value = (Total Free-Float Market Capitalisation of All 30 Entities ÷ Base Market Capitalisation) x Base Value (100)

• Total Free-Float Market Capitalisation 

The stock exchange determines the free-float market capitalisation of each of the 30 entities in the Sensex and sums it up to arrive at the total free-float market cap. 

To determine a company’s free-float market capitalisation, the exchange uses the following formula: 

Free-Float Market Capitalisation = Market Cap x Free-Float Factor

• Free-Float Adjustment Factor

The exchange applies a free-float adjustment factor for each company to exclude locked-in shares held by promoters or governments. This ensures the index reflects only the active shares available for trading.

• Base Market Capitalisation 

The base market capitalisation is the market cap of the Sensex as of the base year of 1979. This is a constant and is set by the BSE at Rs. 2,501 crores.   

Example

If the price of a major stock rises by 2%, the total free-float market value increases. The formula then divides the new total free-float market value by the fixed base market cap and multiplies it by 100 to arrive at the Sensex’s value.

Practical Implications for Investors 

Now that you know how Sensex is calculated, let us look at some of the practical implications of these indices for investors. 

• How Sensex vs. Nifty Affects Trading Decisions?

The Nifty 50 is highly desirable for derivatives trading, as it often offers high liquidity, which is crucial for entering and exiting positions more easily. Additionally, the index is well-suited for achieving broad sector exposure.   

On the other hand, if you are looking to track or gauge the performance of the absolute largest firms in India, then the Sensex index might be more useful. Ultimately, your choice of preferred index rests on whether you need a wide market snapshot or a focused view of the top thirty blue-chip companies.

• Why Investors Should Understand Point Differences before Interpreting Index Movement?

As an investor, you must not judge market strength solely based on the point values of Nifty 50 and the Sensex. For instance, a 10-point change in the Nifty 50 might be a 100-point change in the Sensex.   

A better way to look at it would be to analyse the percentage shifts in the index to understand true volatility. This prevents you from overestimating a market move based on large point numbers.

Real-world Example

Consider a scenario where Sensex jumps one hundred points from 80,000. This is roughly 0.12%. If Nifty rises thirty points from 24,000, it is also about 0.12%. This effectively shows that a small Nifty change often equates to a much larger numerical shift in the Sensex.

Using Tools: Stock Market Calculators & Nifty Margin Calculators

You can simplify your trading journey by utilising tools like stock market calculators and Nifty margin calculators. These resources help you manage risk and project potential returns effectively.

Stock Market Calculator

If you wish to determine the exact profit or loss from your equity trades or investments, consider using a stock market calculator. It accounts for brokerage and other statutory charges to show net returns.

Nifty Margin Calculator

On the other hand, if you wish to trade in Nifty futures and options, a Nifty margin calculator can help. It estimates the capital required to initiate and hold positions and avoid unexpected margin calls.

FAQs

• Why does Sensex show higher points than Nifty 50?

The Sensex has a base year of 1979, which is much earlier than that of the Nifty 50, which has a base year of 1995. As a result, the Sensex showed more compound growth than Nifty.

• What is the difference between Nifty and Sensex?

The primary difference between Nifty and Sensex is that the Nifty 50 represents 50 of the top stocks on the NSE, whereas the Sensex represents 30 of the top stocks on the BSE.

• How is Sensex calculated?

The Sensex is calculated using the free-float weighted market capitalisation method. It divides the total free-float market capitalisation of the 30 constituent companies by a fixed base market capitalisation value. The resulting figure is then multiplied by a base value of 100. 

• How can I calculate margins for Nifty trading?

A Nifty margin calculator can help you determine the exact capital required for trading in Nifty futures and options contracts.

Conclusion

With this, you must now be aware of the reason for the fundamental difference between Nifty and Sensex. The higher value of the Sensex is only due to its earlier base year and not because of superior performance to the Nifty. For accurate planning, utilise Samco’s stock market calculator to monitor investment growth and the Nifty margin calculator to determine capital requirements for derivative trades.