Written by The stock market indices in India, namely, Nifty 50 and Sensex, serve as the key indices to gauge the performance of the stock markets and the health of the economy of that country. The indices give investors an insight into market trends, economic developments, and investor sentiment.
Though they both check the movements of companies that perform best, they differ in terms of structure, calculation methodology, and the exchange they represent.
Sensex, which started in 1986, is the benchmark index of the Bombay Stock Exchange (BSE) comprising 30 of the most actively traded and financially sound companies.
On the other hand, Nifty 50, operational since 1996, is the National Stock Exchange’s (NSE) flagship index comprising 50 large-cap companies across diverse sectors.
Both largely determine their values based on free-float market capitalization, but their different sets of constituents and representations across sectors render them unique in their respective impact on market players.
The importance of these indices has made them closely followed by investors and analysts as these are indicators of economic stability, investment sentiment, and financial market conditions in India. It is important to understand how they differ to make correct investment decisions and operate successfully in the stock market.
Composition
The Sensex, from a set of around 30 stocks listed on the Bombay Stock Exchange (BSE), was notified in 1986. These stocks are selected based on certain parameters like market capitalization, liquidity, and industry representation.
The other index, the Nifty 50, was introduced in 1996, is a leading index on the National Stock Exchange (NSE) and symbolizes representation from a multitude of sectors of the Indian economy.
The calculation Methodology
Both use the method of free-float market capitalization, which considers the market value of shares that are freely traded. The base years and values differ though: Sensex uses 1978-79 as the base year with a base value of 100; the Nifty 50 employs 1995 as the base year with a base value of 1,000.
Market Coverage and Sector Representation
Whereas the Sensex covers 30 companies, the inclusion of 50 companies in the Nifty 50 allows for wider market coverage. The broader scope helps the Nifty 50 capture more of the market and can often provide a better view of market trends.
Tracking and Investment
These indices are being tracked by various commercial systems, online brokerage sites, and through news reports by investors. Both indices find a mention in almost every piece of news in finance, hence their movements are very closely followed by investors and analysts alike.
Conclusion
While both indices are the most important pieces of information reflecting the performance of the Indian stock market, the differences that they carry concerning composition, calculation, and sectoral representation, give different perspectives to investors.
While an investor learns that out of the 30 well-reputed companies, Sensex gives insight into the performance of blue-chip stocks, the index Nifty 50, with its wider selection of 50 companies, captures much wider market sentiment. Such differences can help an investor to shape his investment strategies based on risk appetite and market exposure.
Moreover, both are very closely followed by analysts, traders, and other institutional investors, the movement of both indices affects the markets by leading to changes in trading volumes and even in regulatory policies.
For people chasing diversified insights into the market, it could be advised to view them both together; hence the perspective changes to a much more complete view of the economy as well as finance in India.
Written by 
Written by