What is stock market Index?
There are thousands of companies listed on stock markets, making it almost impossible to monitor each company. This is why stock market indices are created which brings together a select group of company stocks and regularly measures them to show the performance of the overall market or a certain segment of the market.
Sensex is the oldest market index in terms of equities and also includes shares of 30 firms listed on the BSE. Sensex was first compiled in 1986.
There is Standard and Poor’s CNX Nifty index which includes 50 shares that are listed on the NSE. It was founded in 1996.
Overall, an index helps an investor to pick stocks faster, understand the health of the stock market, enables them to study the market sentiment, makes it easy to compare the performance of an individual stock and thereby overall aid in convenient passive investing.
An index reflects the general market trend for a period of time. It is a broad representation of the country’s state of the economy. Index is also used actively as a benchmark to judge the performance of various mutual funds, and investors.
Overall, an index helps:
- An investor to study various sectors,
- Understand the health of the market,
- Enables us to study market sentiment, and,
- Makes it easier for us to compare the performance of an individual stock with the market.
- Used as a hedging tool to hedge portfolios.
The criteria of stock selection can be based on the type of industry, market capitalization or the size of the company, price of the stock and any other feature.
Some of the notable indices in India are as follows:
