News bulletins usually quote two numbers for the Indian market: "SENSEX closed up 400 points, NIFTY up 120." Beginners often wonder which one is the real market and why one is more than three times the other. The short answer: both measure the same large Indian companies in almost the same way, on two different exchanges. This guide explains the differences that do matter, especially for option traders.
The two exchanges
India has two main stock exchanges. BSE (formerly the Bombay Stock Exchange) is Asia's oldest, founded in 1875. NSE (the National Stock Exchange) started in 1994 and introduced fully electronic, nationwide trading; today it handles most of India's share and derivatives trading. Most large companies are listed on both, and their prices on the two exchanges stay within paise of each other.
Each exchange has a flagship index: SENSEX for BSE and NIFTY 50 for NSE.
Side by side
| Point | SENSEX | NIFTY 50 |
|---|---|---|
| Exchange | BSE | NSE |
| Number of stocks | 30 | 50 |
| Base period and value | 1978–79 = 100 | 3 November 1995 = 1,000 |
| Launched | 1986 | 1996 |
| Method | Free-float market cap | Free-float market cap |
| Typical use | The headline "market" number in news; BSE options | Benchmark for most funds; India's most traded options |
The name SENSEX comes from "Sensitive Index". It has used free-float weighting since 2003; NIFTY moved to it in 2009.
Why SENSEX is a bigger number
The level of an index depends on its starting point. SENSEX started at 100 in 1978–79; NIFTY started at 1,000 in 1995, after the market had already grown a great deal. So the two numbers are on different scales. Through recent years SENSEX has been roughly 3.3 times NIFTY: with NIFTY near 25,000, SENSEX is near 82,000.
That is why points mislead. "SENSEX up 400, NIFTY up 120" sounds like SENSEX did better, but 400 ÷ 82,000 is about 0.49% and 120 ÷ 25,000 is about 0.48%: almost exactly the same move. Always compare the two in percent.
Why they move together, and when they do not
Almost all SENSEX companies are also NIFTY 50 members, and they are the largest ones, so they dominate both indices. On most days the percentage change of the two differs by only a few hundredths of a percent.
Differences appear when:
- A company is in NIFTY but not SENSEX and has a big day. NIFTY has 20 more companies, often from sectors such as metals, pharma or energy.
- Weights differ. With only 30 members, each SENSEX company has a somewhat larger weight, so the biggest banks and a few others matter slightly more.
- Index changes happen at different times, so for a while one index holds a stock the other does not.
For investors, the choice between a SENSEX fund and a NIFTY 50 fund makes little difference over long periods. NIFTY is a bit more diversified; SENSEX a bit more concentrated.
Live example: the two straddles
For option traders, the clearest way to compare the two is through their at-the-money straddles, which show how much movement each index's options price in. Here is the SENSEX straddle:
And the NIFTY straddle, recorded the same way:
Look at the shape of the two lines rather than the rupee level: SENSEX premiums are larger because the index is larger. Divide each straddle by its index level to compare like with like; when both expire around the same time, the percentages are usually close. Their expiry days differ, so on any given day one of them may be much nearer expiry and decaying faster. See what is a straddle.
SENSEX and NIFTY options
- Exchange. NIFTY options trade on NSE; SENSEX options on BSE. Most brokers offer both.
- Expiry day. The two have weekly expiries on different weekdays, set by each exchange and changed from time to time. Check the current expiry days on NSE and BSE, or on the expiry page.
- Lot size. Each has its own lot size, reviewed periodically by the exchange. Check the current figure before trading.
- Liquidity. NIFTY options are the most traded in India; SENSEX options grew strongly after BSE relaunched them. Liquidity in far strikes and far expiries can still differ, which affects the bid-ask spread (the gap between buying and selling prices).
- Strike gaps. SENSEX strikes are spaced in larger point steps because the index is larger, but in percent the spacing is similar.
A worked example: with NIFTY at 25,000 and SENSEX at 82,000, a 1% move is 250 NIFTY points and 820 SENSEX points. A NIFTY straddle of ₹200 (0.8% of the index) and a SENSEX straddle of ₹660 (also about 0.8%) price the same expected move, even though one is three times the other in rupees.
A short history of each
SENSEX was India's first widely followed index. For decades, when trading happened by open outcry on the floor of the Bombay Stock Exchange, "the Sensex" was simply what people meant by the market, and many milestones are still remembered in SENSEX terms: crossing 1,000 in 1990, 10,000 in 2006, and later 50,000 and beyond. Its 30 companies have changed many times as India's economy changed, from old industrial groups towards banks, IT and consumer companies.
NIFTY arrived with NSE's electronic trading in the 1990s and was designed from the start to be tradable: its members had to be liquid enough for funds to buy and sell large amounts cheaply. When NSE launched index futures in 2000 and index options in 2001, NIFTY became the underlying, and it has dominated derivatives trading since. That is why most option-related data in India, including India VIX, is built on NIFTY.
Both indices are maintained by the index arms of their exchanges, follow published rules for adding and removing companies, and are reviewed regularly. Neither is "official" in any legal sense; both are simply well-designed measures that the market has agreed to watch.
Which one should you follow?
For understanding the market, either will do; most professional analysis and fund benchmarks use NIFTY 50 because it is broader. For options, choose by the expiry day that suits your trading, the lot size that suits your capital, and the liquidity in the strikes you use. Neither is better in itself. The NIFTY 50 guide explains index construction in more depth.
Common mistakes
- Comparing points. Always compare percent changes.
- Assuming identical expiries. Expiry days, lot sizes and margins differ and change over time.
- Treating them as different markets. They overlap so much that holding both a SENSEX and a NIFTY fund adds little diversification.
- Ignoring liquidity in far strikes. A wide bid-ask spread on a thinly traded strike can cost more than any difference between the two indices.