Why share market index is important in the world of stocks?

market index

When it comes to the stock market of India, the Nifty and Sensex are the 2 most important indices. They are the benchmark which means, they are not only important but a standard point that works as a reference for the entire stock market of the country.

Before understanding the share market index today or for any day – one needs to have an idea of what stock market indices are.

What is Stock Market Index?

The perfect way to understand the stock market index is to know what exactly the stock exchange is. It is a place where most of the tradable securities like bonds, shares, commodities, and derivatives are listed. In order to trade (which is to buy or sell) the securities one needs to be listed on the stock exchanges. The SEBI (Securities and Exchange Board of India) is a regulator of such activities. The major stock exchanges in India are the Bombay Stock Exchange and National Stock Exchange. Other than these 2, there are a few others like:

  • Calcutta Stock Exchange
  • Commodity & Derivatives Exchange Ltd
  • Metropolitan Stock Exchange

In fact, there are 9 stock exchanges recognized by SEBI in India.

The stock market index in India is also an indicator of the respective stock exchange. There are thousands of companies that are listed under these exchanges but when it comes to the indicator they only mark the top-performing ones. This is majorly done in order to reduce the clutter and to give an indication of the market’s true position.

Always the better and bigger companies lead the economy when it comes to the financial health of the country and so it is only practical to keep their indices on top.

Types of Stock Market Index

In order to know the share market live today – one should be aware of the different types of stock market indices.

Benchmark Index

This is a collection of the 30 best-performing stocks along with the Nifty 50 (which is a collection of the 50 best-performing stocks) that are indicators of NSE and BSE respectively. They are considered to be a benchmark because they are concise and regulate the companies. So, one can get an idea of how the market is doing in general.

Sectoral Index

Both BSE and NSE have some indicators which are a gauge of companies falling under one particular sector. The Healthcare of these 2 is the primary indicator of their respective changes when it comes to pharmaceutical sectors.

 Market-cap based index

There are a few indexes that can purely select companies on the basis of market capitalization. This is the market value of any traded company. There is small-cap which are indices that are collections of those companies which have small market capitalization as per the rules of SEBI.;

There are quite a few ways to understand that an index is a way to mean the best of stocks because they impact the economy most and it helps to understand the situation of the share market on a day-to-day basis. This is how India selects stocks.

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