Sensex at 27000: Why it has more sex appeal than Nifty hitting 8100

The NSE Nifty made history today ( September 2) when it hitthe 8,100-mark for the first time, but I am personally not as excited about it as I was when the Bombay Stock Exchange Sensex crossed the 25,000 mark some time ago, and look forward to the index besting 30k some time by March - as some experts are assuring us it will. I myself tend to make predictions more on the Sensex than the Nifty.

This love-affair with the Sensex is illogical, for, as The Economic Times assures us, the Nifty is a more solid index. It has 50 stocks in it (against 30 in the Sensex), a higher market capitalisation (Rs 55 lakh crore versus the Sensex’s Rs 45 lakh crore), and higher price-earnings and price-to-book multiples, not to speak of being the base for the entire market for derivatives. If you are married to money, like many foreign institutional investors (FIIs) and fund managers are, you have to be married to the Nifty.

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But love-affairs are driven more by emotion than logic. And so the public is likely to track the Shifty Sensex more than the Nifty Fifty.

I must confess, I have a personal interest in the Sensex because I was one of the unofficial midwives around the time of its unofficial birth.

Some time in 1988 or 1989, a chartist called Deepak Mohoni - now a popular face on business TV channels for his technical analysis - met me (I was then editor at BusinessWorld) to demonstrate how good his charts on the BSE Sensitive Index were. He wanted me to use the software, but I was more interested in the technicals output. As I remember it, Mohoni was not happy with the use of a long name like BSE Sensitive Index, and was looking for a shorter - sexier - name, and hit upon the acronym of Sensex. I was one of the first editors to use the shorter form in BusinessWorld magazine, and the short-form soon caught on with the investing public.

However, I root for the Sensex more than the Nifty not only because I was present at the former’s birthing, but because it simply has more oomph. Some reasons why…

One, being more volatile, it can demonstrate more dance-floor moves than the Nifty. People love the Sensex for the same reason why the Dow Jones Industrial Average - with all its idiosyncratic volatility - is watched more than the S&P 500 in the US. A 25-30-point move in the Nifty is less exciting than a 100-point surge in the Sensex even though they tell us the same story.

Two, to know the direction of the wind, you need a weathercock more than a barometer. The weathercock registers the smallest shifts in wind direction; a barometer measures changes in atmospheric pressure, which is important to tell something about the broader weather, but not good enough to tell me which way the wind is blowing now. The Sensex is more weathercock than barometer; the Nifty is a bit of both - barometer and weathercock.

Three, I believe the Sensex measures the demand and supply situation for stocks better than the Nifty for the simple reason that it is less influenced by pure speculation in the derivatives market. The Sensex has practically no futures and options (F&O) presence; the Nifty’s direction is practically defined by the F&O market. Sensex derivatives are just 1 percent of the Nifty F&O market. Some market purists will say the real market is a mix of both cash and derivatives. I won’t quarrel with them. But I believe that the Sensex tells us what the market for stocks is like now; the Nifty tells us about current and future sentiment, including speculative intent. You can like either of them depending on what your own investment intent is.

This is a neat reversal of the actual history of the Sensex and the Nifty. It was the BSE that was once considered a den of unbridled speculation that often led the bourse towards infamous defaults. The NSE was created to ensure a disruption-free market environment where the players were not the umpires. The NSE today is a safe market, and so is the BSE. But speculation drives the NSE more than the BSE.

Four, however, this is not to say that the BSE is better than the NSE. In fact, if I buy or sell anything - which is rare, since I am a buy-and-hold type of investor, not a speculator - I tend to use the NSE because it gives me finer rates. This is also why institutional investors with large buy and sell orders prefer the depth of the NSE. The NSE cash market is five times as big as the BSE (daily average Rs 15,441 crore in 2014 versus BSE’s Rs 3,043 crore), but it is still the Sensex that pumps up the adrenalin.

Five, the Sensex also had the early mover advantage. One tends to remember first-loves better than subsequent flings.

If I were to put it simply, the SenSEX has more sex appeal, even if the Nifty is less fickle. The Sensex is about heart, the Nifty about mind. May both prosper.