The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are stock exchanges in India where people buy and sell stocks from thousands of listed companies. With so many companies, figuring out what’s happening in the overall market can be difficult. That’s why stock indices like SENSEX and NIFTY 50 are essential. 

This blog explains what stock indices are, what NIFTY 50 and SENSEX are, how to calculate them, and their main differences.

What Is A Stock Index?

Stock Indices show how a whole stock group is doing based on a sample of representative items. In the same way, benchmark indices show how the overall stock market is doing and serve as a benchmark to compare stock performance during a specific period.

For example, if a stock went up by 2% in a day when the stock index went up by 2.5%, then that stock is said to have done worse than the overall stock market. The value of stock indices is calculated using the stocks that make them up. Here, we’ll provide more information about two important benchmark indices in India i.e. NIFTY 50 and SENSEX.

What Is NIFTY 50?

The NIFTY 50 is a stock market index that represents the performance of the top 50 companies listed on the National Stock Exchange (NSE).

About NIFTY 50

The NIFTY 50 was created by the National Stock Exchange (NSE) in 1996 and is short for National Stock Exchange Fifty. It monitors the performance of the most liquid and large-cap stocks. Its 50 components are chosen from a variety of sectors, including:

  • Banking/Finance
  • Information Technology
  • Chemicals
  • telecommunications
  • Metals and mining
  • Utilities, etc.

How To Calculate NIFTY 50?

POINTS TO REMEMBER:

  •  The free-float market capitalization weighted method is used to calculate NIFTY 50.
  • The starting market capitalization of NIFTY 50 is ₹2.06 trillion, which is the total market value of all 50 companies in the index during the base period. The calculation for NIFTY 50 starts on November 3, 1995.
  • The base index value for NIFTY 50’s calculation is taken as 1,000.

Here is the step-by-step process of the NIFTY 50 calculation:

  1. To determine the total market capitalization of all constituents, you must multiply the total number of outstanding shares of each constituent by their respective stock prices.
  2. After this, to calculate the free-float market capitalization of all constituents, you must exclude the shareholding of promoters, government holdings, equity owned by associate/group companies, employee welfare trusts, and shares under the lock-in category from the total outstanding shares.
  3. Weights are assigned to stocks based on their free-float market capitalization. The weighted free-float market capitalization is obtained by multiplying the free-float market capitalization calculated earlier with the assigned weights.
  4. By adding up the weighted free-float market capitalization of all 50 companies, you can determine the present market value of an index. As a result, the formula for calculating the NIFTY 50 index is:

NIFTY 50 = (Current market value/Base market capital)*Base index value

Where-

Base market capital = ₹2.06 trillion

Base index value = 1,000

What Is SENSEX?

The SENSEX is a stock market index that tracks the performance of the top 30 companies listed on the Bombay Stock Exchange (BSE). It measures the performance of 30 large-cap and highly liquid stocks.

About SENSEX

The Stock Exchange Sensitive Index, commonly known as SENSEX, was introduced in 1986 as the Bombay Stock Exchange benchmark index (BSE). The constituents of SENSEX are selected from diverse sectors, including:

  • Information Technology(IT) 
  • Banking and Finance
  • Automotive
  • Utilities
  • Pharmaceuticals
  • Food and beverages, etc.

How Is SENSEX Calculated?

  • The weighted free-float market capitalization method is used to calculate SENSEX.
  • The base market capital of SENSEX is considered ₹2,501.24 cr. (₹0.025 trillion). The base year for the calculation of SENSEX is 1978-79.
  • The base index value taken for SENSEX’s calculation is 100.

Here is the step-by-step process of calculation of SENSEX.

  1. To determine the market capitalization of all 30 constituents, their total outstanding shares are multiplied by their respective stock prices.
  2. To calculate the free-float market capitalization for all 30 companies, privately held shares are excluded from the total outstanding shares.
  3. The total free-float market capitalization is obtained by adding up the free-float market capitalization of all 30 companies.

Finally, here is the SENSEX calculation formula:

SENSEX = (Total free-float market capitalization/ base market capitalization) * Base index value

Where-

Base market capitalisation = ₹2,501.24 crore 

Base index value = 100

SENSEX Vs NIFTY 50: Key Differences

Point of differenceSENSEXNIFTY 50
Owned byBombay Stock Exchange (BSE)NSE Indices Limited, a subsidiary of the National Stock Exchange (NSE)
Year of introduction19861996
Abbreviated fromSENSEX is an abbreviation of sensitive and index.NIFTY 50 is an abbreviation of national and fifty.
Number of constituents30 companies50 companies
SectorsConstitutes companies from 15 sectors (as of September 16, 2022) Constitutes companies from 17 sectors (as of September 16, 2022) 
Base index value for calculation1001,000
Base period for calculation1978-79November 3, 1995

Final Thoughts

In conclusion, SENSEX and NIFTY 50 are significant benchmark indices for India’s leading stock exchanges. Many companies are listed on both exchanges and hold positions in both indices, which represent the stock market’s performance. Although they differ in ownership, incorporation years, number of constituents and sectors, and calculation methods, neither index is superior to the other.

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