Indian Stock Market Indices
What Are Stock Market Index/Indices?
Stock market indexes are collections of shares chosen depending on specific factors like share size, frequency of trading, etc. To represent market direction and change through an index on the stock market, sampling is used.
Let’s start with a common question: What is stock market index?
Stock Market Index Meaning
A statistical tool that reflects changes in the financial markets is a stock market index. The indices serve as performance indicators for either a specific market segment or the entire market.
Selecting particular stocks from related companies or those that satisfy a set of specified criteria results in the creation of a stock market index. The exchange already lists and trades these shares. A number of selection criteria, like industry, market sector, or market capitalization, can be used to generate stock market indexes.
Each share market index tracks the performance of the shares that make up that index in terms of both price movement and share performance. Basically, this indicates that the performance of any stock market index is directly inversely correlated with the performance of the underlying stocks that comprise the index. In simple and plain language, as the prices of the stocks which is in index rise, same time index will go up.
What Are The Types Of Stock Market Indices?
Based on the kinds of equities that are considered while constructing an index, there are various forms of stock market indices. Here is a closer look at some of the indexes that are used most frequently:
- NSE Nifty and BSE Sensex (Benchmark indices)
- Nifty 50 and BSE 100 (Broader indices)
- BSE Midcap and BSE Smallcap (Based on the market capitalization of companies)
- Nifty Bank Index, CNX IT, Nifty FMCG, and S&P BSE Oil and Gas (Sector-specific indices)
A Closer Look At The Two Indian Stock Market Indices –
The BSE Sensex and NSE Nifty are the two leading indicators for the Indian stock markets.
S&P BSE Sensex:
Sensitive and index are combined to form the name Sensex. It is the oldest in India and was first introduced in 1986. The top 30 largest and most actively traded equities listed on the Bombay Stock Exchange make up the BSE Sensex (BSE).
CNX NIFTY (NIFTY 50):
This stock market index, also referred to as the NSE Nifty, consists of the top 50 biggest and busiest-trading stocks on the NSE. NSE NIFTY, which was first established in 1996, is owned and operated by India Index Services & Products Limited (IISL), a partnership between the National Stock Exchange and an Indian credit rating agency called CRISIL. CRISIL and NSE are represented by the letters CNX in the CNX NIFTY.
Why Are Stock Market Indices Required?
The performance of market indices acts as a very trusted indicator of the condition of the markets and reflects the general sentiment of investors. These indices also give investors access to a variety of data, which they can use to develop and put into practice investment strategies.
Provide Important Information For Benchmarking:
When analyzing stock market holdings, many traders, investors, and other market participants use the performance of the indexes as a benchmark. For instance, you can compare the NIFTY’s performance during a specific time frame to the real performance of the companies in your investing portfolio over that time frame.
Help Minimize Your Exposure To Risk:
Investing in index funds is one approach to beat the market. Index funds have a less risk of underperformance since they gather equities from different sectors and businesses, they effectively diversifying your investment portfolio in different sectors. Your corpus may be reduced if you invest in particular stocks that perform poorly. By using stock market indices, however, your risk exposure is substantially reduced.
Help Passive Investors:
Choosing the best stocks to invest in requires extensive research. For passive investors, who seek long-term investment opportunities without actively managing their portfolio all the time, this may not be feasible.
Conclusion
In times of market turbulence, stock market indices are a great safety net for conservative investors. If you’re new to the equity markets, it might be a good idea to obtain a better understanding of how the markets actually operate by learning about share market indices and experimenting. You might potentially build a portfolio that replicates an index of the stock market. Through expert suggestions and an investing strategy tailored specifically to your risk tolerance, it will lower the costs of stock selection and research without sacrificing the quality of your assets.
Also Read – Best Book For Investment In Share Market