Sensex vs Nifty

SENSEX is the sensitive Index of Bombay Stock Exchange (BSE), India, a Market Capitalization Weighted average of 30 large and financially stable

companies’ BSE stock prices. These 30 companies account for a half of the total market capitalization of BSE. Started since 1986, SENSEX is monitored

by most of the global markets as well .

NIFTY is Standard & Poor’s CRISIL NSE Index 50, is the index for large and financially sound companies who’s stocks are being traded on National of

National Stock Exchange (NSE) of India. Started since November 1995, nifty is most widely used for benchmarking index funds, index based

derivatives and to evaluate the overall performance of the nation’s stock market over time.

On plotting the daily closing values of Sensex and Nifty over last three months(25th February to 25th May, 2010 i.e. more than 50 samples), with the

hypothesis that SENSEX is independent variable and Nifty is dependent on SENSEX, by performing ANOVA or Analysis of variables test in MS-Excel, the

coefficient of correlation or R-square comes out to be 85% and the hypothesis proves to be correct with 95% confidence. The inference from above

mathematical analysis is that even though both indices belong to separate markets, their performance/daily movement is almost identical, which can

be spotted visually as well, because both the curves fit very well and mostly give identical information.

The war between the two has intensified due to the ever rising competition between NSE and BSE. Both of them have their own USPs. The market

Capitalization of NSE is almost twice of BSE, but, the BSE is the oldest stock exchange in Asia and has its own history. The fact that both are having

many independent powers & separate entities worsens the situation. So, the only common link between them now is SEBI, which has a totally different

role, as it’s a regulatory authority to watch and control the legal and ethical aspects of the market and protect the interests of shareholders. Hence, no

one, not even the SEBI is an intermediary between the two, thereby, intensifying the competition between them to become the preferred exchange for

top companies. Even though the competition is healthy for any company to emerge stronger, provide more value added services and work smarter, it

becomes totally unhealthy and destructive when there are price wars and a red ocean causing them to put their riches in advertising and other undue

marketing/brand building expenses.

So, whom to track? Whom to believe and follow? Which of them is a better indicator of the market? Who is better in gauging the Indian stocks?

Ironically, it doesn’t matter at all. Both SENSEX and Nifty are well diversified and contains many similar companies’ stocks. So, even though Nifty has

got 20 more companies, that’s 67% more variety, both SENSEX and Nifty moves in the same direction and the trend seems like totally correlated.

There is a definite difference in scale or magnitude, but, after scaling and equalizing both to similar bases, there will be hardly any difference in both

indexes. So, the choice is based only on convenience and not on the performance. The global markets prefer SENSEX because that was the only option

with them earlier and they don’t want to switch to other without any clear reason for that sudden change. As far as the Index funds are concerned,

they deal on a huge volume, hence, dealing on a low turnover BSE might create huge swings, so, they prefer the NSE. As most of them anyways deal

in NSE, it makes a point to use Nifty than SENSEX as SENSEX gives perception of BSE, which might create some confusion in the minds of customers.

The same is the reason why Moneyvidya, which is a free stock advisory service for Indian investors also track the performance of the registered

analysis by comparing their stock pick’s returns with Nifty. The portal started with accepting stocks listed in NSE, hence, the initial choice was Nifty,

but, there were many stocks, which were listed on BSE and not on NSE, hence, they started BSE stock picks service as well. Now, even for stocks

which are in BSE and not listed in NSE, are also evaluated vis-a-vis the Nifty for that period as other it will kill the consistency and make it difficult for

the designers to rank each individual.

The country's two premier stock exchanges, the Bombay Stock Exchange [ Images ] and the National Stock Exchange, are locked in a brand war to popularise their key

indices, the Sensex and the Nifty-50, respectively.

While the Sensex is being marketed as "the index the world tracks," the NSE's Nifty-50 is being publicised as the "stock of the nation."

The NSE is 14 years old, whereas the BSE is Asia's oldest stock exchange, but only ten years separate the vintage of their indices. The Sensex started in 1986 and the Nifty-

50 in 1996.

And here is the irony. NSE's turnover at Rs 9,029.51 crore is almost double BSE's Rs 4,541.76 crore. The NSE's index-based derivatives attract big trading volumes,

whereas BSE's index-based trading is yet to start in a major way. The Nifty-50 generates daily trades of over 2,36,000 futures contracts to the BSE's paltry 4,244 trades.

But when it comes to brand recall and popularity, it is the Sensex that has the upper hand. Now, with both exchanges becoming the centre of global trading attention, their

managements are trying hard to outdo each other.

The BSE has started a major initiative to attract big trading in derivatives based on the Sensex. It is asking members to trade more frequently on the Sensex futures, while the

NSE is trying to overcome its weakness in the Nifty-50 brand by unleashing a major advertisement campaign.

"Many people trade on our Nifty index, but they talk about the Sensex. So, we thought we will make people aware of its benefits," said an NSE official, explaining the brand

campaign. "Nifty-50 is a more balanced and diversified index," he added.

The BSE, meanwhile, is not sitting complacently. In a booklet recently circulated to the broking and investment community, BSE Managing Director and CEO Rajnikant Patel

wrote, "Though most of the trading in index futures is done on the Nifty futures, investors are not gaining from the unique advantages that the Sensex futures contract offers."

So, why is it that the Sensex has more brand recall than the Nifty-50?

"It is only a perception. We hope to remove this perception through the campaign," the NSE official said.