What are Nifty 50 And Sensex? Difference Between Them

What are Nifty and Sensex? Are these acronyms one and the same? No, of course not. The terminology of these two indices differs, so we need to understand the difference between them before diving into their values.

First, we need to know what is Nifty 50 and what is Sensex.

What is Nifty 50?

The Nifty 50 is a benchmark Indian stock market index that defines the weighted average of 50 of the selected large Indian companies listed on the National Stock Exchange. It is one of the most followed benchmark indices in the Indian stock market.

Nifty 50 is managed and run by NSE Indices, which is a wholly-owned subsidiary of the National stock exchange (NSE) Strategic Investment Corporation Limited.

It was launched on 22 April 1996 and as of now, it is one of the most traded derivative instruments in the future and options segment.

Components of Nifty 50

In the below table, you can find components of Nifty 50, sector, and their weightage on the index.

Eligibility Criteria For Listing in Nifty 50 Index

The eligibility criteria for listing in the Nifty 50 index are:

• The company’s share must be registered with the National Stock Exchange (NSE).
• The company’s stock should have had 100% trading frequency in the last six months.
• Stocks having differential voting rights can be the part of Nifty 50 subjected to several conditions.
• stocks must be highly liquid that can be measured by their average impact cost.
• The company should be allowed to trade in futures options.

The nifty 50 index gets reconstituted after every 6 months time period, based on the performance of the stock and based on fulfilling the eligibility criteria when the elimination or inclusion of old or new stock is done.

The reconstitution may be done when a company goes through a corporate action like mergers, acquisitions, etc. The screening of the companies may also be done quarterly as per the market regulator SEBI’s regulations. [Source]

How Nifty 50 is Calculated?

The NIFTY 50 is calculated employing a float-adjusted, market capitalization-weighted methodology,
wherein the level of the Nifty 50 index reflects the total market capitalization of all the shares in the index relative to a particular base period.

The calculation methodology also takes into account constituent changes in the index and corporate actions like stock splits, rights issuance, etc without affecting the index value.

What is Sensex?

The BSE SENSEX earlier known as the S&P Bombay Stock Exchange Sensitive Index is a free-float market-weighted stock market index of 30 well-established and financially stable companies listed on the Bombay Stock Exchange (BSE).

The 30 component companies which are some of the biggest, most liquid, and actively traded stocks are representative of different industries of the Indian economy. The index was started on 1 January 1986, and it is regarded as the pulse of the domestic stock markets in India.

The benchmark index has increased by over twenty-five times from June 1990 to the present. Using information from April 1979 onwards, in the long-run S&P BSE SENSEX works at a compounding return of 18.6% per annum.

Components of Sensex

Eligibility Criteria For Listing in Sensex

Some primary criteria used in selecting the 30 stocks that comprise Sensex are:

• The company should be listed on BSE.
• The stock has to be a large cap or a mega-cap.
• There should be sufficient liquidity and good trading volume each day.
• The revenue of the company should come from its core business activities.
• The company should have a diversified and well-balanced sector focus in parallel to the Indian stock market.

How Sensex is Calculated?

The BSE has some checks and modifies its composition to be sure it echoes the current market conditions. Sensex is calculated based on a free-float capitalization method, an interpretation of the market capitalization method.

Instead of using a company’s outstanding equity shares, it uses its free market float or shares that are easily available for trading. Free Floating capital indicates total capitalization and fewer Directors’ shareholding.

As per the free float capitalization method, the level of the market index at any point in time reflects the free float market value of 30 constituent shares relative to a specific base period.

The market capitalization of a specific company is determined by multiplying the price of its shares by the number of shares issued by corporate actions, replacement of scrips. [Source]

Difference Between Nifty 50 and Sensex