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What Is the Stock Market Index/Indices

By News Canvass | Nov 11, 2022

The two most significant stock market indices in India are Sensex and Nifty. They serve as the major benchmark indexes and a common point of reference for the whole Indian stock market. It’s critical to comprehend what stock market indices are before continuing.

Knowing what a stock exchange is can help us comprehend how to read a stock market index. All marketable securities, including shares, bonds, derivatives, and commodities, are listed on the stock exchange.

These securities must first be listed on stock exchanges in order to be traded (bought and sold), and the Securities and Exchange Board of India (Sebi), our market regulator, is in charge of such operations.

Benchmark Indices: The benchmark indices for the BSE and NSE are the S&P BSE Sensex, which is made up of the 30 best-performing stocks, and Nifty 50, which is made up of the 50 best-performing stocks. They are regarded as benchmark indexes because they are the most succinct, control the companies they choose using the best methods, and are thus the best indicators of how the markets are performing generally.

Indices by sector: Both the NSE and the BSE exchanges feature indicators that serve as a barometer for businesses in a specific industry. Indices for their respective exchanges’ pharmaceutical sectors include NSE Pharma and S&P BSE Healthcare. Nifty PSU Bank and S&P BSE PSU Indices, which are gauges of all the listed public sector banks, are two further examples.

When a complete index, such as the Sensex or Nifty, moves up or down, it indicates that the stocks that make up those indices have done better or worse than expected. This does not imply that if a stock in the index, such as Reliance Industries Ltd. (RIL), which is included in both the Nifty and the Sensex, increases by, say, 4% during a trading session, the index will not also increase by 4% because other stocks in the index may also have increased or decreased and affected the movement of the index. Not every area of the economy is doing well on any given day. Because not all stocks have the same weight, the total value of an index cannot be calculated by simply adding all the m-cap values.

Stock information is abundant in indices. Price past performance, volume variations, peer-to-peer comparison, sector performance, volatility, and a sense of market direction. If a grouping of the top 30 or 50 businesses exhibits an upward or downward tendency, it says a lot about the state of the stock market as a whole.

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