What are stock market indices?

You may often hear people speaking that the ‘market’ fell one day, or that the ‘market’ jumped. However, if you read the stock table, you will realize that not all stocks rose or fell. There were some which moved in the opposite direction. Then, what does the ‘market’ mean?

It means an index.

Read more to understand stock indices.

WHAT ARE STOCK INDICES?

From among the stocks listed on the exchange, some similar stocks are selected and grouped together to form an index. This classification may be on the basis of the industry the companies belong to, the size of the company, market capitalization or some other basis. For example, the BSE Sensex is an index consisting of 30 stocks. Similarly, the BSE 500 is an index consisting of 500 stocks.

The values of the grouped stocks are used to calculate the value of the index. Any change in the price of the stocks leads to a change in the index value. An index is thus indicative of the changes in the market.

Some of the important indices in India are:

• Benchmark indices – BSE Sensex and NSE Nifty
• Sectoral indices like BSE Bankex and CNX IT
• Market capitalization-based indices like the BSE Smallcap and BSE Midcap
• Broad-market indices like BSE 100 and BSE 500