Hundreds of companies are listed on stock exchanges so it is almost an imposing task to keep a track of every listed company. The performance of each company varies. In such a situation, how can one get the measure of the overall health of the market. Here come Market indices into the role.
In general, an index describes the overall amount or measure of change in a basket of shares. Market indices are a guide on how particular stocks, representing various sectors, are performing. It is a measure of the change in the performance of these stocks. The movement of the market index shows the general trend in the market. Indian stock markets have multiple benchmark indices NSE Nifty, BSE Sensex, BSE Smallcap, BSE Midcap or BSE 100 and so on. Today we will talk about the most famous two, Nifty and Sensex.
Sensex is an index of the Bombay Stock Exchange. In other words, the 30 largest companies of the country listed on BSE are indexed on the basis of market cap in the Sensex index. The word Sensex is made up of Sensitive and Index. It includes big corporate houses like Reliance, TCS, Infosys. A few, months back Sensex crossed the 60000 mark and currently it is fluctuating between 57 and 58 thousand.
The Sensex was launched on 1 January 1986. It includes a total of 30 companies. This is the reason why it is also known as BSE30. The fluctuations of the Sensex show that what is the condition of the country’s representative companies and the stock market.
Like Sensex, Nifty is also a market index but this comes under National Stock Exchange. A total of 50 companies of the country are indexed in Nifty. These companies are selected from 12 different sectors of the economy. The word Nifty is made up of National and 50.
Nifty or Nifty 50 was started in the year 1994. The volatility in the Nifty gives an idea about the market in which direction its trend is going.
Significance of these indices:
Apart from these two indices, there are many other indices as well which indicate the ups and downs in the Indian stock market. However, most other indices show the trend of a particular sector or a particular classification of companies. For example, Banking indices, IT indices, Pharma indices, Infra indices etc.
Although to get the overview of any specific sector, these indices are more relevant than Sensex and Nifty, the overall trend of the market can be deduced by Sensex and Nifty. Indices also help in predicting the future direction.