Sensex, Nifty Meaning | Difference Between Sensex and Nifty in Share Market | Nifty Share Price | What is the formula for calculating Nifty
The market indices Sensex Nifty just represent the market. They serve as benchmarks for the stock market’s trend, industry development, and individual investors’ portfolios in the country. This article discusses Sensex Nifty, how they are calculated, and how they differ.
Table of Contents
About Sensex
Mr. Deepak Mohoni, a stock market expert, coined the term Sensex, which is derived from the words sensitive and index. The Bombay Stock Exchange, or BSE, has an index for it. The 30 firms that make up the Sensex are picked based on their liquidity, market capitalization, revenue, and diversification. A company must also be listed on the BSE in order to be included in the Sensex.
It is one of India’s oldest indicators, and many people regard it as a reflection of the Indian economy and a measure of market performance. It is used as a benchmark to assess the Indian economy and industry’s growth and development, as well as to analyze the stock market’s trend.
The top 30 stocks make up the Sensex index. The price movement of the underlying stocks determines the index’s value. If the price of most assets has increased, it will result in an increase in the value of Sensex. The price of most of the underlying securities has fallen, resulting in a decline in the index’s value.
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About Nifty
Nifty, like the Sensex, is a stock market index. Nifty is the symbol of the National Stock Exchange. The word “Nifty” is actually the combination of the two words. One word is “National” and the second word is “Fifty.” The Nifty 50 is a benchmark index and this benchmark index includes the top 50 stocks on the National Stock Exchange.
The top 50 stocks that make up the Nifty 50 come from a variety of industries. Information technology, consumer products, financial services, vehicles, and telecommunications are just a few examples.
To be considered for the Nifty 50, organizations must meet the following standards and criteria:
- Liquidity: In the previous six months, the stock should have traded at an average cost of 0.50 percent or less.
- Domicile: The Company must be based in India and be listed on the National Stock Exchange (NSE).
- Adjusting the Float: The Company’s float-adjusted market capitalization must be at least twice that of the smallest index composition currently in use.
About Index
A market benchmark that follows the performance of a basket of assets is known as an index. The entire market is represented by this basket of securities.
An index is a collection of stocks chosen based on market capitalization or other factors. The value of the index is affected by changes in the price of the underlying securities. Because the index represents the entire market, every change in the index’s value has an impact on the value of unlisted companies as well as other financial goods, such as commodities.
Economic variables such as inflation and interest rates are also measured using indices. They serve as a yardstick against which portfolio returns can be measured. Investors can compare their investment portfolio returns to benchmark returns and, if necessary, make modifications to their portfolios. The Nifty 50 and BSE Sensex are the most widely followed indexes in the country.
Major Parameters that Affect the Performance of Indices
Index performance is influenced by a number of major elements.
The stock market frequently reflects the state of the economy. During an economic downturn, the stock market is generally sluggish as well. Some of the elements that influence the performance of the indices are as follows:
Rates of Interest
The stock market index rises and falls in response to interest rate changes. When the government raises interest rates, for example, the cost of borrowing for businesses rises. As a result, the corporation strives to reduce its costs. As a result, the company’s earnings and stock prices may suffer as a result of this.
Rate of Inflation
Inflation has an effect on stock market indices as well. When inflation is high, for example, individuals do not have enough money to invest. As a result, the investment power is reduced. It affects businesses as well. The company’s greater input costs are passed on to the customers. These have a direct impact on sales as well as the company’s earnings. As a result, there is a ripple effect on stock prices.
Global Economy
A worldwide economic downturn has an impact on equities markets. Currency exchange rates (rupee fluctuations), crude oil prices, political instability, and other factors all have an impact on stock market performance.
Sensex Nifty Stock Market Indices: Types
A stock market index does not just represent the entire stock market. In reality, specialized sector-based indices exist to represent a single industry. There are various indices based on market capitalization that represent companies with a specific market cap. The various forms of market indices are as follows:
Benchmark Index
A benchmark index is a representation of the whole stock market. It aids in the analysis and comprehension of market trends. It is used to measure the performance of individual investment portfolios as a benchmark. The BSE Sensex and Nifty 50 are India’s benchmark indices.
Broad Market Index
A broad market index is similar to a benchmark index, but it includes a larger number of stocks. The BSE Sensex, for example, is made up of 30 financially stable enterprises. The BSE 100, on the other hand, is a broad market index that includes the top 100 companies.
Market Capitalization index
A market capitalization index focuses on a certain market cap, reflecting all firms with that market cap—for example, the BSE Smallcap and Nifty Midcap indexes.
Industry or sector-based index
An index that is based on a certain industry or sector.
Sector-based indexes are used to represent an entire sector. They will have firms that are part of a single industry, such as Nifty Pharma, Nifty FMCG, and Nifty Auto, among others.
The Importance of Stock Market Indices
The Nifty and the Sensex are stock market indexes that show how the market is performing. Individuals can use these indices to investigate and analyze stock market patterns.
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Assists in Stock Selection
The exchange is home to thousands of businesses. An investor’s task of reviewing all of the stocks before limiting down their investing alternatives is arduous. As a result, it’s often difficult to tell two companies apart without a benchmark index. Stock market indices can be handy in such situations. Furthermore, an index categorizes companies by industry, size, financial effect, and other factors. As a result, investors may compare the stocks that comprise an index, narrowing their search for firms to analyze.
Beginners will find this useful.
Because stock markets are so volatile, investors must exercise extreme caution. Because most newcomers are unfamiliar with market dynamics, market indices are an excellent starting point for understanding and analyzing stock market performance. Beginners who are investing without the help of a financial advisor might use an index to track and invest.
Reflects Investor sentiments
The stock market index changes can be used to analyze investor mood.
Certain reforms or corporate announcements, for example, put pressure on certain stocks. In other words, some investors believe that such news will have an influence on a company, and they will purchase or sell the stock as a result. However, in order to determine the impact of any trend, it is necessary to examine the underlying sentiment.
Option for passive investment
Investing in an index is a quick and easy way to get into the finest stocks. This is referred to as passive investing. Before investing in each stock individually, the investor does not need to undertake much study or analysis. They can invest in an index fund that tracks the benchmark index with a single click.
What is the formula for calculating Nifty?
The free-float market capitalization-weighted technique is used to calculate the Nifty 50. The index’s price indicates the total market value of all the stocks in the index as of November 3rd, 1995, compared to the base period.
Market Capitalisation = Current market price * Outstanding shares
Free Float Market Capitalisation = Shares outstanding * Price * Investable Weight Factors (IWF) ^
Index Value = (Current Market Value / Base Market Capital) * Nifty Base Index Value (1000)
The index’s base market capitalization is the sum of the market capitalization of each scrip in the index during the base period.
^The units of floating stock expressed in terms of a number that are open for trading and are not held by entities with strategic interest in a firm are known as investible weight factors. The IWF’s for each firm in the index is generated using the public shareholding patterns filed with the stock exchanges on a quarterly basis.
How is the Sensex Calculated?
The Sensex is calculated using the underlying 30 firms’ free-float market capitalization and Sensex’s base value. The steps to compute the Sensex value are as follows:
- The market capitalization of all 30 companies is first determined.
- The companies’ free-float market capitalisation is then calculated and combined together to arrive at the overall free-float market capitalisation.
- Sensex Formula is given by:
(Free float market capitalization of 30 firms / Base market capitalization) * Base value of the index is the Sensex formula.
- The market capitalization of the free-float market has already been calculated. To establish the value of Sensex, all of these values must be entered into the Sensex formula.
Diffrenece between Sensex Nifty
| Parameter | Sensex | Nifty |
| Full-Form | Sensitive and Index | National and Fifty |
| Ownership | Owned by Bombay Stock Exchange (BSE). | Owned and managed by an NSE subsidiary, Index and Services and Products Limited (IISL). |
| Base Number | Sensex’s base is 100 | Nifty’s base is 1000 |
| Base Capital | NA | INR 2.06 Trillion |
| Base Period | 1978-79 | November 3rd, 1995 |
| Number of sectors | Covers 13 sectors | Covers 24 sectors |
| Number of Stocks | Top 30 companies that actively trade on BSE. | Top 50 companies that actively trade on NSE. |
| Foreign Exchanges | It trades on EUREX and stock exchanges of BRCS nations | Nifty 50 trades on the Singapore Stock Exchange (SGX) and Chicago Mercantile Exchange (SME) |