“The Stock Market is the story of cycles and of the human behaviour that is responsible for overreactions in both directions.”
The Indian stock market is a huge ocean of stocks. The Indian stock market works on the two main stock exchanges. One is the Bombay Stock Exchange and the other is the National Stock Exchange. Both of them are among Asia’s largest stock exchanges.
PremchandRoychand, a Jain businessman, established the Bombay Stock Market in 1875. Bombay Stock Market is the oldest stock exchange in India and also the tenth oldest in the world. Whereas the National Stock Exchange is India’s biggest stock exchange and it was established in 1992. It is the first fully automated screen-based electronic trading system that offered accessible trading facilities to investors spread across the length and breadth of the country.
The number of companies listed on these exchanges make it nearly impossible to keep track of the stock market’s movements. In order to simplify this process, the stock exchanges devised indexes. These indices are more than enough to tell which way the market is heading.
In India, there are two stock indices: Sensex and Nifty. But before knowing about these two lets first quickly understand what index is.
What is Index?
A stock market index is a statistical measure that reflects the performance of a group of stocks in the market. It is a way to track the performance of a particular market or market sector, and it is often used as a benchmark to compare the performance of individual stocks or portfolios. There are many different types of indexes, each with its own set of rules and criteria for inclusion. There are several stock market indexes in India, SENSEX and NIFTY being the most well known, that are used to measure the performance of the stock market and to provide a benchmark for investors.
What is Sensex?
The stock market analyst Deepak Mohini came up with the term “Sensex,” which is the combination of the words “Sensitive” and “Index.” It was introduced on January 1, 1986, and serves as the benchmark index for the Bombay Stock Exchange in India.
Sensex is the basket which constitutes the top 30 companies of India which are trading in the Bombay Stock Exchange. It is also the oldest index of the stock market.
The companies which are listed in Sensex are the top companies of India which are the most active in trading in the stock market. The value of the Sensex is calculated based on the free float market capitalization methodology, where the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The base value for calculating Sensex is 100 and the base year considered for its calculation is 1978-79.
What is Nifty?
The Nifty 50 is a stock market index in India that represents the performance of the 50 most highly traded stocks listed on the National Stock Exchange (NSE) of India. It was launched on 22nd April 1996. Its other aliases are Nifty 50 and CNX Nifty.
Out of the 1600 firms that are actively listed in the NSE, the Nifty 50 includes the top 50 companies across 24 categories.
The NIFTY 50 index now has an ecosystem made up of exchange-traded funds, exchange-traded options at NSE, and futures and options traded abroad at the SGX, making it the largest financial product in India. The most frequently traded contract globally is the NIFTY 50. NSE’s leadership position is endorsed by polls from WFE, IOM, and FIA.
The Nifty 50 index is calculated using free float market capitalization weighted methodology, which means that the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The base value for calculating Nifty 50 is 1000 and the base year considered for its calculation is 1995.
Difference Between Sensex and Nifty:
Nifty and Sensex both are quite similar and are frequently used for the same purpose but are very different from one another in practice. To learn more about the differences in these two have a quick look on the table below:
| S.No. | SENSEX | NIFTY |
| 1 | It is the benchmark index of the Bombay Stock Exchange. | It is the benchmark index of the National Stock Exchange. |
| 2 | Sensex term is the combination of Sensitive and Index’. | NIFTY 50 is the combination of ‘National and Fifty’. |
| 3 | It was launched on January 1, 1986. | It was launched on April 22, 1996. |
| 4 | Sensex is India’s oldest stock index. | It is the new Stock Index of India. |
| 5 | It constitutes the top 30 companies actively traded in BSE. | It constitutes the top 50 companies actively traded in NSE. |
| 6 | The base value for calculating Sensex is 100. | The base value for calculating Nifty 50 is 1000. |
| 7 | The base year for calculating Sensex is 1997–1998. | The base year for calculating NIFTY 50 is 1995. |
| 8 | It covers 13 sectors. | It covers 24 sectors. |
Conclusion
Both the Nifty and the Sensex include a few reputable and fundamentally sound corporations. In connection with that, if you invest in one of these indices, you can contribute to the process of wealth development. Ensure that you have a demat account so that you can invest in the stock market easily and begin the process of capital appreciation.