Nifty is the widely tracked benchmark by portfolio managers while Sensex retains its symbolic value. Mutual funds, brokers and portfolio managers prefer to track Nifty as it is more diversified and has a vibrant derivative market. BSE Sensex with its historical significance?its index values are available for three decades as opposed to 1995 for Nifty?continues to retain on top-of-the-mind among veteran investors.
According to Value Research data, 67% of equity mutual fund assets were benchmarked to Nifty rather than Sensex. Mirae AMC deputy CIO & head of equity Gopal Agrawal said, ?Nifty has more stocks (50-stocks) against Sensex (30). From a long-term horizon, broader is better for benchmarking as it is more robust and difficult to beat.? He explained that in the near term there could be a rally in few concentrated sectors or stocks impacting fund managers relative performance. As of today, Sensex is fairly diversified with 11 sectors while Nifty boasts of 23 sectors.
ICICI Securities CIO Piyush Garg said, ?Market benchmarks against Nifty as the entire derivatives market is on the NSE. The Sensex is more psychological.? Currently, the derivatives trades on NSE clock a daily turnover in excess of Rs 1 lakh crore while volumes are insignificant on the BSE. However, some market participants still prefer the Sensex index for other reasons. ?Sensex with lesser stocks is relatively easier index to track,? UBS Securities head-research Suresh Mahadevan said. This is understandable to some extent since active fund managers usually try and beat the index returns by going overweight/underweight on stocks, which constitute the index. Lesser stocks and almost similar performance, makes a case to track Sensex portfolio with lesser stocks. Since 1995, in terms of returns, both these large-cap indices have given same return of 408%. However, a FE study of risk-adjusted return performance though shows that Nifty has scored slightly over Sensex.
The outperformance was largely possible due to lesser risk score for Nifty against Sensex. ?Nifty has more stocks (than Sensex) which could even out index volatility,? said a NSE senior official on condition of anonymity. On the measure of ‘downside risk’?the number of times the index gave negative daily returns?Nifty slightly lagged that of Sensex. For the purpose of the study, Nifty and Sensex performances were analysed since ’95, when Nifty was introduced.