Investing in stocks has become one of the most common method that is chosen by individuals to increase their wealth and establish financial stability for the times ahead. And nowadays we can see a lot of people coming forward to make their investments in the stocks. Within the stock market context, the sensex and the nifty stand out as two highly recognized indices. While both sensex and nifty offer insights into the markets condition, they are varied in many aspects. They are different in their computation approaches and the fundamental components driving them.

What does it mean by an index?

Well, when talking about sensex and nifty, one should also know about an Index. Because sensex and nifty are also indices. An index, in the stock market is nothing but a statistical measure that tracks changes in the value of a selected group of stocks. It provides an idea of the overall markets performance and allow investors to get the right direction and health of the economy. Indices play a pivotal role in evaluating market trends, making investment decisions, and comparing the performance of various stocks.

Sensex:

The sensex, the abbreviation for the sensitive index, is actually a stock market index that represents the performance of the stock exchange. In a stock market it is composed of many well established and financially sound companies from diverse sectors. Sensex is an integral part of the indices of a stock market.

How is Sensex Calculated?

Well, to explain how sensex is calculated, let us take the help of some mathematics. The sensex is determined by adding up the closing prices of the top 30 stocks included in the index, each multiplied by its relevant weight. These weights are actually determined by dividing the free float market capitalization of each stock by the base market capitalisation and then multiplying it by the index’s base value. Actually this might confuse at least some of you. If you are having any trouble in understanding it, at least understand the fact that the sensex is an index and it is actually giving you an idea of the market value.

What does it mean by Nifty?

If you know sensex, you should also know nifty. Because leaving any one of this away will be an incompletion of your knowledge. Nifty, officially known as the Nifty 50, is yet another major stock market index in India. As the very name suggests, it includes 50 well established and liquid stocks from different sectors. The Nifty was introduced by the National Stock Exchange on April 22, 1996, to provide a broader representation of the equity market’s performance. Therefore it is clearly understood that the Nifty is of utmost important as far as the stock market is concerned.

How is Nifty Calculated?

Well, the Nifty index is utilizing a methodology as per the free float market capitalisation. This implies that each stock’s weight in the index is determined by its market capitalisation, but only those shares which are publicly available for trade are considered. These publicly available shares are known as free flaot shares. And when comparing to sensex the calculation process is seemingly little more easier to understand.

What are the things that affect the performance of an index?

There are very many factors that affect the performance of an index. Let us now have a glannce into those matters that affect the performance of an index.

At first the economic conditions affect the performance of an index. Overall economic growth and stability can impact both indices. And when it comes to the company performance, it has also got the power to have an impact on the index. Then also comes the global market trends, interest rates, and government policies. All these have the ability to make an impact on the index.

FINAL WORDS:

As we have reached the concluding part of our discussion on the differences between Sensex and Nifty, it is very clearly understood that both are indices but are different from each other. If you are having any further queries or clarifications, you are free to connect with us in FIMKIN.