In this article, we will discuss
- Why Does Sensex Have More Points than Nifty?
- How Is Nifty 50 Calculated?
- How Is Sensex Calculated?
- Differences Between Sensex and Nifty
- Factors Affecting Sensex and Nifty
Why Does Sensex Have More Points than Nifty?Often, traders/investors wonder whether Sensex is better than Nifty 50 or not. But why is there any difference?Nifty 50 comprises the top 50 stocks and is a broad index compared to Sensex which comprises the top 30 stocks only. In a bullish market, the top companies perform better and ultimately push the Sensex higher.If a trader compares the past data of these two indices, they’ll see that both indices have different base values used for their calculation. Moreover, he/she will see that Sensex is a much older index (started in 1986) compared to Nifty 50 (started in 1996) resulting in the former having more points.Let’s check the calculation of both indices to understand their differences.
How Is Nifty 50 Calculated?The free-float market weighted capitalisation method is used to calculate Nifty 50. It is indicative of the total market value of all stocks in Nifty 50 in relation to its base period which is November 3 1995.The total value of shares of a company held by all investors including promoters is referred to as market capitalisation. Free-float market cap is the total market price of all shares which are available for public trading, i.e. those that are not held by the government or company owners.‘Weighted method’ means that the component of each stock that is used to calculate the index is assigned a particular weightage based on the total value of their outstanding shares.Total market cap of each stock is calculated by multiplying it with a float factor, also known as Investible Weight Factor (IWF). Notably, it takes into consideration only those shares available for public trading.These formulas are used to calculate the value of Nifty 50:Market capitalisation = Current market price * outstanding sharesFree-float market capitalisation = Market cap * IWFIndex value = (Current market value/base market capital) * 1000Note that the current market value is the weighted aggregate market cap of all companies on Nifty 50. The base market capital is the weighted aggregate market cap of all companies during Nifty 50's base period.
How Is Sensex Calculated?Sensex is calculated by taking into account the free float market capitalisation of 30 companies and the base value of Sensex. The formula for free float market capitalisation is as follows:Free float market capitalisation = Market capitalisation * free float factorAs we know the market value of a company is calculated as follows:Market capitalisation = Share price * Number of shares issued by a companyFirst, one has to calculate the market capitalisation of 30 companies. Next, the free float market capitalisation of all the companies gets estimated. The results are added together to arrive at the total free-float capitalisation value.Now, let’s check how to calculate the value of Sensex:Sensex Value = (Total free-float market capitalisation/base market capitalisation) * base period index valueRemember that Sensex's base value is 100 base points. Its base year refers to 1978 – 1979.
Differences Between Sensex and NiftyThe following table provides differences between Sensex and Nifty 50:
|Operated by||National Stock Exchange||Bombay Stock Exchange|
|Number of listed companies||50||30|
|Number of sectors||Nifty covers overall 24 industrial sectors||Sensex covers a total of 13 industrial sectors|
|Index calculation||Free-float calculation||Free-float calculation|
|Volume and liquidity||Higher||Lower|
|Base period||November 3, 1995||1978 - 1979|
|Base capital||₹2.06 trillion||Not applicable|
Factors Affecting Sensex and NiftyThe stock market of a country is considered to be a reliable indicator of the overall health of its economy. Important factors which affect the valuation of stocks of both indices are discussed below:
ConclusionTo sum up, the flagship index of NSE is Nifty 50 while the one for BSE is Sensex. The latter is perceived to be a better performer than Nifty. But the difference in value is because Sensex comprises stocks of the top 30 Indian companies and more time in the market.Do you wish to achieve the best financial performance? Get the new Samco app , a power-packed robust trading platform which will help you to ace the index with its advanced features.
- Which is older—Sensex or Nifty?
- How do Nifty and Sensex work?
- What criteria affect an index’s performance?