The Nifty is winning the battle of supremacy against the Sensex in the current market rally, thanks to outperformance of some of its stocks which are not part of the benchmark index of the Bombay Stock Exchange (BSE).

At its Friday close of 5,416.05, the 50-stock Nifty, benchmark index of the National Stock Exchange (NSE), has rallied 17.1 per cent in this year so far. In comparison, the 30-stock Sensex index has gained 15.5 per cent, year-to-date. It last closed at 17,848.57.

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This outpeformance has a significant impact on the returns of exchange-traded funds (ETFs) which try to mimic the performance of these two indices. For example, iShares S&P India Nifty 50 ETF had gained 26.7 per cent in this year till yesterday, while the iShares BSE Sensex India ETF had advanced 23 per cent during the same period.

There are 15 Nifty-based ETFs, both in India and abroad, which collectively manage assets worth Rs4,564 crore, according to Bloomberg and Value Research data. On the other hand, there are three Sensex-based ETFs with assets of about Rs1,070 crore.

“A sharp rally in stocks which are not in the Sensex but are present in the Nifty are helping the latter’s outperformance,” said Ambareesh Baliga, chief operating officer at Way2Wealth Securities. “There can’t be much difference in the performance of stocks present in both the indices. Otherwise, arbitrageurs will buy on the BSE and sell on NSE.” Arbitrageurs attempt to benefit from price inefficiencies in the market by making simultaneous trades that offset each other and generate risk-free profits.

Shares of Anil Ambani-led companies – Reliance Infrastructure, Reliance Power and Reliance Communications – which are part of Nifty but are not present in the Sensex have gained between 40 per cent and 81 per cent in this year so far. Others like IDFC (up 50.68 per cent), Jaiprakash Associates (up 51.72 per cent), Sesa Goa (up 49.76 per cent) and Axis Bank (up 39.79 per cent) have also significantly outperformed the broader indices in this year.

Interestingly, last year, when the Indian markets tumbled, there wasn’t much difference between the performance of the Sensex and Nifty. The former had dropped 24.6 per cent in 2011, while the Nifty had declined 24.6 per cent. The Sensex-Nifty ratio, which indicates how many points the Sensex moves for every single point move in the Nifty, has dropped marginally to 3.32 in this year from 3.33 in 2011.
 

Higher liquidity on stocks traded on the NSE could also be the reason behind slightly better prices on the exchange, said the head of institutional equities at a Mumbai-based brokerage, who wished not to be named. Daily average volume in all the top 10 contributors of the Nifty rally was higher on the NSE, compared with that on the BSE.

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