The stock market is home to thousands of equity stocks. If you’re planning to trade or invest in equity, it’s practically impossible to study how the price of each stock is moving, isn’t it? What you need instead is a broader indicator that can help you assess how the market as a whole may be moving. Here’s where stock market indices come in.
They help you assess the performance of the stock market based on the performance of some of the top individual stocks listed on the exchange. These statistical tools are created by grouping together a few stocks listed on stock market exchanges. The stocks selected may belong to the same sector, have the same kind of market capitalization, or even simply belong to the biggest companies listed on the exchange.
Stock market indices help you gauge how the market as a whole may be moving and measure the changes in the market or in one of its segments. There are different types of stock market indices such as benchmark indices, sectoral indices and thematic indices. Stock market indices can be calculated using different methods such as full market capitalization, free-float market capitalization, price-weighted calculation or equal weighted calculation.
A stock exchange is a centralized location where all the tradable equity stocks are listed and bought and sold regularly. To be publicly traded, a stock needs to be listed on a stock exchange. In India, we have two main stock market exchanges, namely the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). And both of these stock exchanges have their own benchmark indices, viz. the BSE Sensex and Nifty50.
These are the two most important stock market Indices in India. And since they are the benchmark indices, they act as a standard point of reference for the Indian stock market as a whole. The Sensex is composed of the stocks of the 30 most financially sound and well-established companies trading on the BSE, while the Nifty 50 consists of the stocks of the 50 largest companies listed on the NSE.
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