What Is Sensex And Nifty? How Are They Calculated?
Sensex and Nifty are two large-cap indexes associated with two different stock exchanges of the country namely Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). These are just statistical aggregate on how a change in the stock market can be measured.
What is Sensex?
Sensitive Index or Sensex is the stock market app index indicator for the BSE. It is also sometimes referred to as BSE Sensex. It was first published in 1986 and is based on the market-weighted stock index of 30 companies based on the financial performance. The large, established companies that represent various industrial sectors are a part of this.
How is Sensex calculated?
The calculation of Sensex is done by a Free-Float method that came into existence from September 1, 2003. The level of Sensex is a direct indication of the performance of 30 stocks in the market. The free-float method takes into account the proportion of the shares that can be readily traded in the market. This does not include the ones held by various shareholders and promoters or other locked-in shares not available in the market.
Process of calculation of Sensex
First, the market capitalization is taken into account. This is done by multiplying all the shares issued by the company with the price of its stock. Then BSE determines a Free-float factor that is a multiple of the market capitalization of the company. This helps in determining the free-float market capitalization based on the details submitted by the company. Then, Ratio and Proportion are used based on the base index of 100. This helps to determine the Sensex.
What is Nifty
National Stock Exchange Fifty or Nifty is the market indicator of NSE. It ideally is a collection of 50 stocks but presently has 51 listed in it. It is also referred to as Nifty 50 and CNX Nifty by some as it is owned and managed by India Index Services and Products Ltd. (IISL).
How is Nifty calculated?
Nifty is also calculated through the free-float market capitalization weighted method. Just like Sensex, Nifty also follows a mathematical formula based to know the market capitalization. It multiples the Equity capital with a price to derive the market capitalization. To determine the Free-float market capitalization, equity capital is multiplied by a price which is further multiplied with IWF which is the factor for determining the number of shares available for trading freely in the market. The Index is determined on a daily basis by taking into consideration the current market value divided by base market capital and then multiplied by the Base Index Value of 1000.
Conclusion
Both Sensex and Nifty are stock market index used to determine the value and strength of the stock market. Since Nifty is more diversified and has more stocks listed as compared to BSE, more trading is done on it. However, in reality, both target the large-cap stocks and performance over the years have turned out to be similar.