To start investing in the Indian stock market is easy. You can open both accounts simultaneously by approaching a depository participant or DP and opening a Demat and trading account with them. So, you select a DP, visit their website, and fill out the online Demat account opening form. You then submit the documents required for the Demat account opening process. The authorities validate your details, and you can start investing within a day or two.

However, once you start investing, you will come across many investing and stock market-related terms or concepts. If you have a Demat account, you will likely have already encountered the terms Nifty and Sensex. The Nifty and Sensex are two standard stock market terms closely associated with NSE BSE. This article will explain how the Sensex differs from the Nifty. However, first, we will understand what is common between them.

The Nifty and Sensex – Indices of The Indian Stock Market

The Nifty and the Sensex are the two primary indices of the Indian stock market. Now, what are indices, you ask? Indices or an index is the market benchmark that tracks the performance of the collective market or a particular sector. Since both the Nifty and Sensex are primary indices, they are indicative of the performance of the entire stock market. Specific securities or stocks of particular companies make up an index.

The stocks that constitute the index have to fulfill specific criteria.

The value of the stocks that make up the index influences its value. So, when an index’s value goes up, the price of most of its constituents has also gone up. Likewise, if the value of the index falls, it means the share prices of most of its underlying have also fallen. The Nifty and the Sensex constitute the stocks of companies from different sectors to represent the overall market more accurately. Both the Indices help gauge the current market trend and assess the state of the Indian economy.

The Nifty 50

The Nifty and Fifty, popularly known as the Nifty 50 or Nifty, is the primary benchmark index of the National Stock Exchange, India’s other major stock exchange. CNX Fifty is another alias for the Nifty. You may have probably figured out from all its names that the Nifty 50 constitutes the top 50 companies listed on the NSE. The Nifty constituents must meet the parameters of liquidity and float adjustment requirements. They also have to trade on the NSE. The National Stock Exchange’s subsidiary, the India Index Services Products Ltd (IILS), operates the Nifty. Incorporated in 1995, the Nifty started with a base value of 1000. The free-float market capitalization-weighted methodology computes the value of the Nifty.

The free-float refers to those shares that are freely available to the public for trading purposes. A company may have several hundred crores of shares. However, insiders who do not trade may possess a massive chunk of shares. Those shares are not available to the public.

The Sensex

Now that you know about the Nifty, let us look at the Sensex and understand how it differs from the Nifty. The Sensex, coined by stock market analyst Mr. Deeppak Mohoni, is the benchmark index of the BSE (Bombay Stock Exchange). The term Sensex stands for Sensitive and Index. The Sensex is also called the S&P BSE Sensex. Unlike the Nifty, The Bombay Stock Exchange directly operates the BSE.

The Sensex comprises the top 30 large-cap companies, in contrast to the Nifty, which consists of the top 50 companies. These 30 companies comprise the largest, most liquid, and most frequently traded companies. All the companies included in the Sensex trade on the BSE. The Sensex is the older index of the two, as its base year is 1978-79. Compared to Nifty’s base value of 1000, the base value of the Sensex is 100. The free-float market capitalization methodology decides the value of the Sensex.

Since the Sensex has 30 companies compared to the Nifty’s 50, in a bullish market, the increase in the value of the Sensex is higher than that of the Nifty. That is because the value of top companies increases during a bull run is high, and it is those leading companies that drive the index higher. Likewise, if the top companies perform worse than the others, the Sensex will fall at a higher rate. However, the Sensex represents few sectors compared to the Nifty, as it has fewer companies.

We hope the article has satisfactorily expanded on the subject beyond the primary NSE BSE differentiation. You now read about fundamental analysis, or you can look at the documents required for demat account, if you have yet to open one.