- You might have heard about the stock market indices such as Sensex, Nifty 50, and the like.
- We will be discussing them in detail here.
What are stock market indices?
- A stock market index is a collection of stocks that will fall within a certain category or have certain similar characteristics.
- There are different types of stock market indices, such as sectoral indices, which represent the stock of a particular sector.
- The volatility index is something that represents the volatility in the stock market.
- Stock market indices are used to analyze the overall performance of the stock market.
- For example, there are thousands of companies that are listed on the exchanges.
- For an individual investor, it is not at all possible to track the performance of all the listed companies and then invest in a certain stock.
- To be able to overcome this problem, indices are used to track the performance of the stock market.
How do the stock market indices work?
- An index will contain a group of stocks.
- But the individual performance of the stock is weighted to calculate the performance of that index.
- Stocks with a higher weightage will have more influence on the movement of that index, and the stocks that have a lower weightage will have less influence on the movement of the index.
- Generally, the stock market indices are weighted according to the 3 categories.
They are as follows:
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- Market capitalization is the value that you will get by multiplying the total number of shares by the present share price.
- The main index here is Nifty 50, which will also give more weight to the larger companies with higher market capitalizations.
- This is the reason why Reliance has more weightage than any other company that is also a part of Nifty 50.
- In a price-weighted index, each of the companies in that index will make up a fraction of the total index proportional to that company’s share stock price per share.
- In simple words, stocks with higher prices will contribute more towards the index.
- In an equal-weighted index, each stock will have an equal weightage irrespective of the share price and market capitalization.
Nifty 50 index
- The Nifty 50 is a benchmark Indian stock market index that will represent the weighted average of the 50 largest Indian companies that are listed on the National Stock Exchange (NSE).
- This index will include 13 sectors of the Indian economy, such as information technology, financial services, consumer goods, entertainment and media, metals, pharmaceuticals, telecommunications, cement and its products, automobiles, pesticides and fertilizers, energy, and other services.
- This index was established on 22nd April 1996, with a base price of 1000.
- This index is owned and managed by NSE Indices, which was previously known as India Index Services and Products Limited.
- This is a wholly owned subsidiary of the NSE Strategic Investment Corporation Limited.
- You can check the list of the Nifty 50 companies at: https://www.nseindia.com/market-data/live-market-indices
Sensex index
- The Sensex is a benchmark Indian stock market index that will represent 30 well-established and financially sound companies listed on the Bombay Stock Exchange.
- Sensex was established on 1st January, 1986 with the base period of 1978-79 and base value of 100.
- Sensex is a combination of two words, which are sensitive and index.
- By using this information from 1979 onwards, the long-term rate of the return of Sensex comes out to be 18.6% per annum.
- You can find the list of the top 30 companies of the Sensex below: https://www.bseindia.com/sensex/code/16/
- Along with Nifty 50 and Sensex, Bank Nifty, CNX IT, CNX Metal, and CNX Auto are the major sectoral stock market indices of the Indian stock market.
Conclusion
With this blog, we hope that stock market indices and how the stock market indices work are clear.
Frequently Asked Questions
Q1) What is the best indicator of the bull market?
RSI is the best indicator of the bull market.
Q2) How to identify a bull market?
A bull market happens when the stock price has gone up 20% or more from the previous low for a sustained period of time.
Q3) What is the most powerful indicator in trading?
Simple Moving Average (SMA) is the most powerful indicator in trading.
Q4) Which indicator gives the highest accuracy?
The Moving Average Convergence Divergence (MACD) indicator gives the highest accuracy.
Q5) Which indicator confirms the trend?
The ADX indicator confirms the trend.
About Us
Nifty Trading Academy is our academy where we teach you about the stock market as well as technical analysis. We also provide live trading sessions and upload blogs for the same.