Should I follow Nifty or Sensex? Here’s 9 Years of Data to Help You Decide

Sensex and Nifty

Yesterday, the Nifty ended in negative territory while the Sensex ended up positive. This quip every investor’s curiosity – Should I be investing in the Nifty or the Sensex? The question becomes more relevant now as more investors are moving to Index funds and have to decide between Nifty or Sensex index funds. In this article, we use data to see if there is any merit in choosing one index over the other.

How often (days) has the Nifty performed better than the Sensex in the last 9 years? And vice-versa

We use data from 22nd April 2011 to 21st April 2020 in this study. During this period there were 2,225 trading days that we shall examine.

Here’s what we find:

Nifty closes positive while Sensex closes negativeNifty closes positive while Sensex closes negative
Number of Instances4139
Total number of observations2,2252,225
% of times this happened1.84%1.75%

The most recent instance of the Nifty ending positive while the Sensex ending negative was on 27th March 2020. 

And the last instance of the Sensex ending positive while the Nifty closed in negative territory was yesterday i.e. 20th April 2020. The previous occasion of this happening was over three months back on 17th January 2020.

How many trading days have been positive and how many negative for the Sensex and Nifty in the past 9 years?

I just love this question and the inferences it comes out with

Let’s look at the data .. first, the NIFTY 

Nifty closes positive1,16652.4%
Nifty closes negative1,05947.6%
Total number of trading days2,225

And now, the SENSEX

Sensex closes positive1,16452.3%
Sensex closes negative1,06147.7%
Total number of trading days2,225

The data here shows that the overall proportion of positive and negative trading days in the Nifty and Sensex were almost the same.

How did the Nifty & Sensex grow when positive days were just 52.3% of all trading days?

This was one of the most interesting aspects of my study.

We just showed that positive trading days were just a little more than half (52.3%) of all trading days over the last nine years.

And yet, the Nifty has gone up from levels of 5,852 on 20 April 2011 to 9,262 on 20 April 2020. The CAGR over this nine year period for the NIFTY was 5.23% 

To understand these movements better, I started by plotting the delta (daily incremental change in percentage) of the Nifty on a dot graph. 

And this was the result. 

Hmm.. not very readable, is it? 🤔

To make the study more compact, I built a buoyancy matrix i.e. I tried to understand at every 10 bps (0.10%) difference, how many days produced a positive buoyancy and how many days produced a negative buoyancy.

The results are as follows.

Movement in NiftyDays when market went upDays when market went downDifference
0.00% to 0.10%108107+1
0.10% to 0.20%125110+15
0.20% to 0.30%9087+3
0.30% to 0.40%11393+20
0.40% to 0.50%8675+11
0.50% to 0.60%8568+17
0.60% to 0.70%7155+16
0.70% to 0.80%6560+5
0.80% to 0.90%4754-7
0.90% to 1.00%4640+6
1.00% to 1.10%4334+9
1.10% to 1.20%3328+5
1.20% to 1.30%2734-7
1.30% to 1.40%17170
1.40% to 1.50%1213-1
1.50% to 1.60%16160
1.60% to 1.70%2418+6
1.70% to 1.80%1412+2
1.80% to 1.90%107+3
1.90% to 2.00%1210+2
2.00% to 2.10%310-7
2.10% to 2.20%89-1
2.20% to 2.30%78-1
2.30% to 2.40%24-2
2.40% to 2.50%550
2.50% to 2.60%31+2
2.60% to 2.70%14-3
2.70% to 2.80%50+5
2.80% to 2.90%21+1
2.90% to 3.00%31+2
TOTAL1083981

In the above table, I kept the outliers away i.e. 40 days when the buoyancy (positive or negative) was more than 3% … and 132 days when the market movement was almost zero.

We clearly see that the net buoyancy was largely positive in the 0.00% to 2.00% segment. In fact, the data shows positive buoyancy in 15 out of 20 slabs with negative buoyancy in only 3 slabs.

Also notice that while a 4% jump or drop is very adventurous to most investors, the real money is made in those small 0.1% to 0.7% daily jumps (more positive than negative) that don’t appeal to most users.

Comparing Sensex vs Nifty returns (performance)

Many investors have wondered and asked if they should put their monies in a Nifty based index fund or a Sensex based index fund. The same question lingers with ETFs also.

Using a mix of performance tables and visualizations, let’s see if whether it’s the Sensex or the Nifty that has been delivering better performance.

Annual returns of Sensex and Nifty

The cursory glance at the graph above shows that it’s generally been the Sensex Index which has been ahead of the Nifty Index. 

Let’s look at the performance of both indices on a year on year basis

YearNifty GrowthSensex GrowthDifference between Nifty & Sensex Annual Returns
201228.3%26.2%+2.2%
20135.9%8.0%-2.1%
201431.5%30.1%+1.3%
2015-3.9%-4.9%+1.0%
20162.7%1.7%+1.1%
201727.6%27.1%+0.4%
20184.5%7.2%-2.7%
201911.7%13.9%-2.3%
2012-2019 (CAGR)12.8%13.0%-0.2%

The reasons for the superior performance of the Sensex can be attributable to the biggest companies in the country growing at a much faster pace than the smaller ones in a bull run. Since the Sensex has the top 30 companies while the Nifty has the top 50, the Sensex does have that small advantage.

However in the years when there was a broad-based rally like in 2014 to 2017, we see that the Nifty grew faster than the Sensex constituents.

So, there you go. It’s a moment of the times. Had this been Dec 2017, the NIFTY would have shown better performance. But right now in Apr 2020, it’s the Sensex which has the upper hand.

What is NIFTY?

The NIFTY is a well-diversified Index of 50 of India’s largest and most liquid listed companies. The NIFTY companies have 66-70% of the market capitalization of all 1600+ listed companies in the National Stock Exchange. This makes the NIFTY a strong proxy to how the overall economy is doing (atleast from a stock market perspective). The NIFTY follows a free float market capitalization methodology.

What is Sensex?

The Sensex is the benchmark index of the Bombay Stock Exchange. The index comprises stocks of 30 of India’s largest and most actively-traded companies that are listed on the stock exchange. The index’s composition is reviewed twice an year and acts as a barometer or gauge to the performance of the Indian economy. First, compiled in 1986, the Sensex is the oldest stock index in India.

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