What is Index?: There are many companies that are listed on the stock exchanges. So, did you ever thought about what is measure on which stocks are performing? For this purpose, there is the development of the stock index. So, in this article, we are representing the detailed content on the index in the stock market. Let’s begin further with the article on “What is Index in Stock Market?”
Let’s begin further with the article on “What is Index in Stock Market?”
What is an Index in Stock Market?
A stock index or stock market index is the measurement of the stock market. The stocks that are listed on the exchange and some of the similar stocks are selected and are grouped together in the sense to form an index. The values of the grouped stocks that are used to calculate the value of the index.
- The value of the stock market index is calculated using the values of the underlying stocks.
- Any of the change that is taking place in the underlying stock prices impact the overall value of the index.
- If the prices of most of the underlying securities rise, then the index will rise and vice-versa.
- The stock selection should be based on the type of the industry, market capitalization or the size of the company.
Why do we need Indices?
- For Sorting
- Making the Comparison
- Useful for Representation
- For generating Passive Income
- Useful as Reflection
How are the Indices Formed?
The indices include the similar stocks that are based on the basis of the industry, company size, market capitalization or any other parameter.
After the stocks get selected, the value of the index is calculated. In India, the free-float market capitalization is the common method that is used in place of prices for calculating the value of an index.
Most Common Methods of Indices are:
- Market Capitalization Weighted Index
- Price Weighted Index
Different types of Indices in India
- In India, there are major two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
- The BSE is the oldest exchange in India with the existence from the year 1875.
- The NSE was founded in 1992 and started trading in the year 1994.
- Both the exchanges follow the same trading mechanism, trading hours, settlement process etc.
What is NSE & BSE?
Index No.1 National Stock Exchange (NSE)
The National Stock Exchange (NSE) was started in the year 1994 and is that the largest stock market in India in terms of total and average daily turnover for equity shares. Being a pioneer in technology, NSE includes a fully-integrated business model to supply high-quality information and services to plug participants and purchasers.
It includes trading services, exchange listings, indices, market information feeds, clearing and settlement services, monetary education offerings and technology solutions. NSE ensures that trading and clearing members and listed corporations follow the principles and laws of the exchange.
Index No.2 Bombay Stock Exchange (BSE)
Founded in 1875, Bombay Stock Exchange (BSE), is that the quickest stock market within the world that has the speed of six microseconds. It provides an economical, integrated, clear and secure marketplace for trading in equity, currencies, debt instruments, derivatives, mutual funds.
It provides an array of services like clearing, settlement, risk management, education and market information services. It’s a world reach with overseas customers and a nation-wide presence. It provides facility services through its Central Depository Services Limited (CDSL) arm.
The S&P SENSEX is India’s most generally tracked exchange benchmark index. It’s listed internationally on the EUREX likewise as leading exchanges of the BRICS nations (Brazil, Russia, China and South Africa).
Conclusion:
For the individual that is looking to invest in the stocks, the index is the better place to start by keeping an eye on the performance of some of the leading stock market indices. These indices will also provide you with the insight in what direction the market is moving whether it is bullish or bearish. Also from watching the indices, you can also get the idea regarding which sectors are performing well.
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