Heated exchanges are not uncommon in dealing rooms and at times the argument revolves around which of the two benchmarks should be followed, Sensex or Nifty. Loyalists of the two camps are equally divided and on most occasions these discussions end inconclusively.

The Sensex or the Bombay Stock Exchange Sensitive Index has the first mover advantage. It was launched in 1986 when neither the National Stock Exchange nor the Nifty were present. It also has the distinction of belonging to a venerable 100 year old institution (BSE). So at a time when global investors were making tentative inroads in to Indian stock market in early 1990s, they had only the Sensex to benchmark against.

Since old habits die hard, most global investors continue to use the 30-share Sensex to track the movement in the Indian stock market. The BSE is, therefore, not far off the mark when it states that the Sensex is the index that the world tracks. The ‘Sensex' brand is one of the most valuable assets that BSE possesses.

If we consider brand recall within India, again the Sensex will win hands down. Many would remember the day this index crossed the 5,000 mark. Five thousand balloons were set loose from the top of Jeejobhoy Towers to mark the occasion. All of us remember the festoons and party hats that TV anchors wore as the Sensex rose beyond the 10,000 or other milestones. The Nifty crossing a 1,000-point milestone does not however evoke similar reaction.

However what the Nifty has lost in brand recall, it has made up by being the index that is most widely traded. It is common knowledge that the derivative segment on the NSE is the active one with traders milling to this exchange drawn by greater liquidity and better price discovery. Volumes on Nifty futures and options account for more than 60 per cent of the total derivative volume on the NSE.

Again since the Nifty is more broad-based and has greater sector-representation, many global funds that invest in India, benchmark themselves to the Nifty.

So which index should technical analysts track? Many traders prefer to use the top-down approach in which they form an opinion regarding the market as a whole. Then depending on the trend in the market, they would decide whether to initiate a short trade or a long trade.

For instance if the trend in the benchmark index is down and it has closed below a major support level, it would be best to initiate short positions in stocks that are also trending lower. Trading in a stock helps generate higher returns (than trading the benchmark) since many stocks register larger moves due to higher impact costs.

Such traders would find it easier to draw a conclusion regarding the trend in the market with the help of Sensex rather than the Nifty. For instance if the Sensex was approaching the 20,000 level, that is a major psychological resistance, it is highly likely that a downward reversal could be in the offing. Traders can therefore anticipate a reversal and initiate fresh shorts.

Similarly if Sensex was close to marking a new life-time high or was on the verge of closing above its 200 day moving average, all the stocks in the market would experience selling pressure. The Nifty does not have this kind of influence on the broader market as yet though it could be getting there.

A thumb-rule that can be used while selecting indicators to work with in technical analysis is to select those indicators that have the larger following. Larger following results in reversals occurring at the expected juncture. Since Sensex is watched by a larger number of market participants, this becomes a more reliable indicator for suggesting market reversals.

So the Sensex is the index the world tracks and Nifty is the traders' favourite. But technical analysts would do well to stick to the Sensex for anticipating market turning points.

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