CNX Nifty: Definition Vs. Sensex, How It Works, and History

What Is the CNX Nifty?

The term CNX Nifty refers to a regional stock market index found on the National Stock Exchange (NSE) of India. The index is composed of 50 of the largest and most liquid stocks found on the exchange. The Nifty 50, as it is commonly known, is used to represent the market for benchmarking Indian investments, among other reasons. Similar to other major stock indexes such as the S&P 500, companies must meet market capitalization and liquidity requirements before they may be included in the index.

Understanding the CNX Nifty

The CNX Nifty was launched on April 22, 1996. The base period for the CNX Nifty index is Nov. 3, 1995, which marked the completion of one year of operations for the National Stock Exchange Equity Market Segment.

Composed of 50 diverse companies that trade on India's NSE, the index is calculated on a real-time daily basis using a free-float market capitalization method. The index is rebalanced semi-annually—the cutoff dates for which are January 31 and July 31 every year. Variants of the index include the Nifty 50 USD, the Nifty 50 Total Returns Index, and the Nifty 50 Dividend Points Index.

The Nifty 50 is ideal for derivatives trading. It is used for a variety of purposes, including benchmarking fund portfolios, index-based derivatives, and index funds. It was declared as the world’s most actively-traded derivatives contract in 2015, according to surveys conducted by the World Federation of Stock Exchanges (WFE), the International Options Market Association (IOMA), and the Futures Industry Association (FIA.)

Nifty 50 Index is the largest financial product in India. A total of 13 sectors are represented as of November 2020. Financials were the top sector represented at about 40%, followed by information technology, and oil and gas. The top three companies by weighting by the end of November 2020 were HDFC Bank (11.21%), Reliance Industries (11.17%), and Housing Development Finance Corporation (7.23%).

Special Considerations

The CNX Nifty was referred to as the Standard & Poor's CNX Nifty until Jan. 31, 2013. But the index changed its name to CNX Nifty after the NSE ended its licensing agreement with Standard & Poor's (S&P). As mentioned above, though, it's commonly referred to in the financial industry as the Nifty 50.

CNX stands for the Credit Rating Information Services of India Limited (CRISIL) and the National Stock Exchange of India. These two bodies own and manage the index within a joint venture called the India Index Services and Products Limited (IISL). IISL is India's specialized company focused upon the index as a core product. 

CNX Nifty vs. Sensex

The other prominent Indian market index is known as the Sensex. Sensex is the oldest market index for equities. It includes shares of 30 firms listed on the Bombay Stock Exchange (BSE), which represent about 45% of the index's free-float market capitalization. This index was created in 1986 and provides time-series data from April 1979 onward.

The BSE and the NSE are the two major stock exchanges in India. The BSE has been in existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading in 1994. However, both exchanges follow the same trading mechanism, trading hours, and settlement periods and processes. The BSE had 5,579 listed firms while 1,945 companies were listed on the NSE as of October 2020.