It is impossible for investors to track thousands of stocks listed on stock exchange. A stock market index is created to track the performance of selected group of companies. The performance of index reflects the overall performance of market. Thus, a stock market index captures the behaviour of the overall equity market. For example, Nifty 50 and Sensex are stock market indices. Nifty 50 tracks the performance of top 50 companies of India. Before understanding the Nifty vs Sensex, let’s first understand what is Full Market Capitalization and Free Float Market Capitalization.
Full Market Capitalization vs Free Float Market Capitalization
- Full Market Capitalization: It is the total value of the tradable shares of a publicly traded company. It is equal to the share price multiplied by the number of shares outstanding of that company. For example, if the share price of Zomato is Rs 10 and the company has total 1000 shares outstanding, then the market capitalization of Zomato will be Rs 10 x Rs 1000 = Rs 10,000.
- Free Float Market Capitalization: It is the total value of a publicly traded company excluding the shares held by the promoters. For example, if promoters of Zomato holds 400 shares out of the 1000 shares of the company than the Free Float market capitalization will be Rs 10 x (1000-400) = Rs 6,000.
What is SENSEX?
Sensex is an abbreviation of the word Sensitive Index – the benchmark index of the Bombay Stock Exchange (BSE). SENSEX is a basket of 30 stocks representing a sample of large and liquid companies. Various core sectors of the economy are represented in the SENSEX.
The objective of the S&P BSE SENSEX is to measure the performance of the top 30 stocks in India by market cap and liquidity. It was the first stock index in the Indian stock market. Sensex is the oldest stock index in India.
It was compiled in 1986 with 1979 as base year and 100 as base value. It was launched on 1st January 1986.
The Index was initially calculated based on the “Full Market Capitalization” methodology but was shifted to the free-float methodology with effect from September 1, 2003. It is computed on free float market capitalization method because it is assumed that the shares held up by the promoters are locked and are not available for day-to-day trading.
What is NIFTY or NIFTY50?
The Nifty 50 index is a well-diversified 50 companies index reflecting overall market conditions. It represents the weighted average of 50 stocks of the largest Indian companies listed on the National Stock Exchange. Nifty 50 Index is computed using free float market capitalization method.
It was launched on 22nd April, 1996 with 1995 as base year and 1000 as base value. NIFTY 50 is owned and managed by NSE and it is the benchmark index of NSE.
NIFTY vs SENSEX
- Nifty comprises of 50 companies, whereas Sensex comprises of 30 companies.
- Nifty is benchmark index of National Stock Exchange, whereas Sensex is benchmark index of Bombay Stock Exchange.
- The base value of Nifty is 1000, whereas base value of Sensex is 100.
- The base year of Nifty is 1995, whereas base year of Sensex is 1979.
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