Nifty 50 Vs Sensex: Key Differences Every Investor Should Know

When you start learning about the stock market in India, two names come up quite often: Nifty 50 and Sensex. 

Both are important market indices that reflect the performance of top companies listed on Indian stock exchanges. But while they may seem similar, there are key differences every investor should understand.

Knowing how these indices work can help you track market trends better and make smarter investment decisions. 

This is especially useful if you’re looking at index funds, futures or analyzing the option chain for trading opportunities. Here’s a simple comparison of Nifty 50 vs Sensex.

What Is Nifty 50?

Nifty 50 is an index of the National Stock Exchange (NSE). The index covers the top 50 companies from many different industries for trading. More than two-thirds of the market capitalization on the NSE comes from these companies.

People in the financial industry rely on the Nifty 50 to judge the general condition of the market. 

The index is also used as a standard by many mutual funds and index investments. You will often notice that on the NSE’s option chain, Nifty 50 index contracts are active because of how popular and highly liquid they are.

How Is Nifty Calculated?

To calculate Nifty, you have to first determine the market capitalization of every company. You can determine the value by following a simple method. 

• Take the number of outstanding shares of the company.
• Now, take the current market price of every share. 
• Then, multiply them.

So, the capitalization of each company listed on the Nifty is:

Market Capitalization = Market price of each share x The number of outstanding shares in each company.

However, there is a catch. The Nifty will not factor in all the shares of the listed company. It will only consider the shares available for public trading following the free-float market capitalization method. 

So, in this method, the shares belonging to the following ownerships are excluded. 

• Governments
• Trusts
• Company promoters

Further, here comes an element called the investable weight factor (IWF). Investable Weight Factor (IWF) means the number of shares a company can freely trade in the market. 

Then, by multiplying IWF with market capitalization, we get free-float market Capitalization.

So, Free-Float Market Capitalization = IWF x Market Capitalization

Once you get the free-float market capitalization of all 50 companies, you will add the values and get the current market value of the entire index. 

The final step in the process is calculating the index value of the shares of a company on the Nifty. 

Index Value = (Current Market Value/Base Market Capitalization) x 1000. 

What Is The Meaning Of Sensex?

Sensex, which stands for “Sensitive Index,” is the leading index at the Bombay Stock Exchange (BSE). It follows 30 leading and financially healthy companies from the main sectors in India.

Like the Nifty 50, the Sensex also tracks the changes happening in the market. Yet, with a smaller selection of stocks, it might not include as many industries. 

Even so, it is an accurate indicator and is closely watched by investors everywhere.

How Is Sensex Calculated?

Sensex also uses a free-float market capitalization method. It also considers only the shares available for public trading. 

This method helps to achieve a more accurate breakdown of the market. 

Here, the first step is to calculate the market capitalization of all 30 listed companies. As you know, market capitalization means the number of outstanding shares of a company multiplied by the market value of each share. 

Then comes the free-float capitalization method, where the shares available for public trading are calculated only. 

Once you have the free-float capitalization of a particular company, you will calculate the free-float capitalization value of all 30 companies. The total value you get at this stage is the complete free-float capitalization value of the Sensex. 

Finally, you will get the total value of the Sensex by using the following formula. 

Sensex Value = (Free-float market cap of all 30 companies/Base Market Capital) × Base value of the Index.

Nifty 50 Vs Sensex: The Nifty 50 And Sensex Have Some Unique Differences

Even though both indices are market indicators, here are the main differences between them:

1. Number of Companies

• Nifty 50 consists of 50 companies.
• The Sensex consists of 30 different companies.

Because of this, the Nifty 50 includes a broader range of companies.

2. Exchange

• Nifty 50 is a part of the NSE.
• The BSE is the owner of the Sensex.

Depending on the platform you use, the trading options and exchanges may differ.

3. Index Calculation

The free-float market capitalization approach is the mode of calculating the Nifty and Sensex. Since the index only looks at publicly traded shares, it becomes more realistic and responsive to changes.

4. Sector Coverage

The indices consist of companies from the IT, banking, pharma, and energy sectors. Still, the Nifty 50 includes more diverse industries because it consists of more companies.

5. Many Traders Are Drawn To Nifty 50

More derivatives traders focus on the Nifty 50 than on other markets. You can see that more Nifty 50 contracts are traded on most platforms compared to Sensex contracts. 

As a result, liquidity goes up, and the difference between buying and selling rates tends to be smaller.

6. Volatility

Volatility is a major factor in understanding the Nifty 50 vs Sensex differences. 

Nifty is a broader spectrum with more sectors in it. So, naturally, the larger constituent base makes it more volatile. 

Sensex, being one of the most established companies in India, offers better stability.

Nifty 50 Vs Sensex: Choose The Platform That Suits Your Style Of Investment

Any investor or trader in India should know the difference between the Nifty 50 and the Sensex. Nifty 50 covers more companies, and it is more popular in derivatives trading, mainly when analyzing the option chain.

If you want to know the market mood, invest in index funds, or explore various trading approaches, watching these indices can help you make better decisions. 

Select the style that suits your approach to investing, or better still, use both to see the bigger picture.