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Nifty and Sensex are both stock indexes. Before learning more about them, let’s take a look at what is an index.A stock index is an organised list of the generally best established companies in their representative industry or sector, which are listed on an exchange. These companies span over several different sectors of the market and usually represent their respective sector. An index is considered to be a good indicator of the overall exchange it represents and even of the market in general. Indexes are also used to measure or create other financial values such as the rate of inflation or the rate of interest on certain instruments. They provide the investor with a valid benchmark against which they can compare the returns of a strategy or portfolio.
What is Sensex?
The stock market indicator of BSE, Sensex is also referred to as BSE Sensex. A weighted stock index of 30 well-established companies, with sound financials, the 30 companies represent different industrial sectors of the Indian economy.Regarded as the pulse of the domestic stock market, the index was first compiled in 1986. The oldest stock exchange in India , it is used by analysts to observe the growth and development of the Indian economy and industries. Following the liberalisation of the Indian economy in 1991, it witnessed enormous growth.
How is Sensex calculated?
When initially launched in 1986, market capitalisation weighted methodology was used to calculate it. However, since 2003 free-float capitalisation methodology is being used to calculate it.Sensex’s level is a direct indication of the performance of the top 30 stocks of its constituent companies. In the free-float method, the proportion of readily traded shares is taken into account. To calculate, first of all, market capitalisation of a firm is considered, which is then multiplied by the free-float factor.The free float factor is found by a percentage of floated shares to outstanding ones. Then, Ratio and Proportion comes into the picture and they are used based on the base index of 100. All these then aids in determining the Sensex.
What is Nifty?
Derived from a combination of National and Fifty, Nifty is the benchmark index of the National Stock Exchange (NSE). Consisting of 51 actively traded stocks, Nifty was introduced in 1996. It is also known as Nifty50 or CNX Nifty . Nifty is owned by the India Index Services and Products Ltd.
How is Nifty calculated?
Nifty too is calculated by using the free-float capitalisation methodology. The index value is arrived at: Market capitalisation = Equity capital X price Free float market capitalisation = (Equity capital x price) X Investible Weight Factor (IWF) Index Value = Current Market Value / Base Market Capital X Base Index Value (1000)
What is the Difference Between Sensex and Nifty?
As such, there is no difference between the Sensex and Nifty. Both these indexes reflect the strength of the market. However, as Nifty consists of more stocks than the Sensex, it’s a little broader. Generally, it’s considered that Nifty has a more diversified portfolio than the Sensex. When compared to BSE, more trading is noticed to happen in the NSE.
How to invest in an Index
There are three methods for investing in an index:
Mutual fund:
One can invest in an index by using a mutual fund, such as the nifty 50 mutual fund or nifty next fifty mutual fund. To invest, one can either invest directly through the AMC's website or through a broker.
ETF:
Exchange traded funds (ETFs) are traded on exchanges like stocks, and their prices change in real time. Investing in an index through an ETF is another popular and excellent method. To invest in an ETF, the simplest method would be to invest through a demat account.
Derivatives:
One can also trade on an index through derivatives, which include futures and options.
FAQS - FREQUENTLY ASKED QUESTIONS
Can we buy Sensex or Nifty ?
You cannot purchase Sensex or Nifty directly, but you can invest in them through mutual funds or exchange-traded funds (ETFs). However, you can trade on Nifty 50 index with futures and options.
What factors affect Nifty ?
Several factors can have an impact on the Nifty 50 index, including macroeconomic factors such as inflation, interest rates, and GDP growth, as well as company-specific data such as better or worse than expected earnings. Additionally, political events, global stock market movements, global events, fear of a recession, and overall market sentiment can all influence the performance of the Nifty 50 index
Which is better Sensex or Nifty ?
It's not really possible to say whether Sensex or Nifty is better, as they have different compositions. The Sensex consists of the top 30 companies in the stock market based on market capitalization, while the Nifty comprises the top 50 companies. However, the 30 companies in both indices are the same, and the last 20 companies in the Nifty do not have as much weightage. As a result, if you compare the returns of the Nifty and the Sensex, you will find that they are mostly similar.
Some investors may prefer Nifty 50 over Sensex because it is a broader index comprising of 50 stocks compared to Sensex's 30 stocks. This gives a wider representation of the market.
What is the minimum amount to invest in Sensex ?
Investing in Sensex is possible through ETFs (Exchange Traded Funds) and mutual funds with a minimum investment amount as low as Rs. 500. When you invest in these products, you will receive units of the fund based on the amount of money you invest.
What happens when Sensex increases ?
When the Sensex increases, it indicates a generally optimistic sentiment in the market. As a result, it is highly probable that most stocks in the market will also see an increase in their prices simultaneously.
Does Sensex affect gold rate ?
There is no direct correlation between Sensex and gold prices, but the economic conditions that affect Sensex may also have an impact on the price of gold. For instance, when the COVID-19 pandemic outbreak occurred, it affected Sensex as well as gold prices. However, it is important to note that a particular event can have a positive impact on Sensex while having a negative impact on gold, and vice versa.
How can i invest in Nifty or Sensex ?
An index is not a direct investment. You can either invest in equity stocks of companies on the index, or invest in the index through mutual funds, ETFs or derivatives such as futures and options.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
