- Everyone has a plan for their future, and this is why many people are looking for investments.
- And when it comes to investing, there is always a term called the stock market.
- Investors will invest their money here in the stock market to maximize their wealth.
- Before investing, one should understand the market indices to grow their invested money.
What are stock market indices?
- Stock market indices are also known as the stock market index.
- It refers to the portfolio of holdings of the investment.
- In simple terms, it is a hypothetical measure of statistics that will represent the performance of the stocks.
- These indices are created based on different criteria, such as the industry, market capitalization, segment, and many others.
- Financial indices are very different from stock market indices because they cover the performance of all the financial markets, such as bonds or the stock market.
Types of indices in the stock market:
There are three types of indices in the stock market.
They are as follows:
Benchmark indices:
- These indices are used to compare the performance of the group of stocks with other stocks and securities in the market.
- Benchmark indices are Nifty 50 and BSE Sensex.
- They are also regarded as the best source through which investors will know the performance of the market.
Market-cap indices:
- These are the indices where the companies are chosen based on their market value.
- The main examples of market-cap indices are BSE midcap and BSE small cap.
Sectoral indices:
- These will include the stocks of different sectors, such as S&P BSE Healthcare, Nifty PSU Bank, and Nifty FMCG.
- Here, the performance of the stock is measured based on the sectoral performance of the companies.
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What is Nifty?
- The Nifty is an index of the National Stock Exchange (NSE).
- It will reflect the performance of the stocks included in the NSE.
- Nifty-fifty refers to the performance of the top 50 companies under the NSE.
- The Nifty represents stocks across 24 different sectors.
What is Sensex?
- Sensex is an index of BSE.
- It is reflecting the performance of the stocks included in the BSE.
- Sensex will show the performance of the top 30 market companies.
- This index represents stocks in as many as 13 different sectors.
How are nifty and sensex calculated?
- The Nifty is calculated based on the performance of the top 50 traded stocks.
- The method to identify the performance of nifty is the free-float capitalization weighted method.
The formula for the same is as follows:
Nifty= (current market value/ base market capital) * base index value.
The base value here is 1000.
Sensex is calculated based on the performance of the top 30 companies on BSE.
The method to calculate sensex is determined by BSE.
Sensex is calculated using free-float capitalization with proportions and ratios.
The formula for the same is as follows:
(Total free float market capitalization/ base market capitalization) * Base index value.
The base value here is 100.
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What are NSE and BSE?
- The NSE and BSE are the two major stock exchanges.
- NSE is the fourth-largest stock index in the world market, based in Mumbai.
- It was established in 1992 to enhance transparency in the stock market.
- It offers the services of trading, settlement, and clearing of debt and equity for domestic and international investors.
- BSE is Asia’s first exchange, established in 1875.
- It is the fastest stock exchange in the world and has a trading speed of 6 microseconds.
The need for indices in the stock market
- Stock indices are acting as a barometer of the stock market.
- It will help you to know the sentiment and methods of the market through which you can identify the pattern.
- With the help of this pattern, you will be able to decide where you should put the money.
The main reasons for needing the market indices are as follows:
Helps in benchmarking:
This index will help many investors as well as traders of the market as a benchmark in analyzing investments.
Minimizing the risk:
With the help of performance evaluation, one will be able to easily minimize the risk that is attached to the investments.
Assessing the performance of the market:
The indices will help the performance of the market by evaluating various criteria.
Grouping of stocks:
Indices will help you find a different group of stocks as per the performance of the market.
Conclusion:
Stock market indices are necessary for all the investors in the market.
Frequently Asked Questions (FAQs):
Q1) What are nifty and sensex?
Nifty and sensex are the indices of the stock market.
Q2) Who represents Nifty and Sensex?
NSE represents nifty, and BSE represents sensex.
Q3) How is the performance of nifty and sensex calculated?
The performance is calculated based on the free-float capitalization method.
Q4) Who is the owner of Nifty?
IISL is the owner of Nifty.
Q5) What is the full form of nifty?
The full form of nifty is the National Stock Exchange Fifty.
About Us:
Nifty Trading Academy is our academy, where we provide training about the stock market as well as market analysis. We also provide live market trading. We do upload blogs for the same. Read them and comment.