Tavagapedia

Index



Key Takeaways

  1. An index is a statistical measure to track the overall performance of a market, be it of shares, bonds, or commodities.
  2. In India, there are more than 7000 companies listed on NSE and BSE.
  3. Benchmark indexes – Sensex of BSE and Nifty of NSE are indexes for large-cap companies.
  4. Indexes represent the market. A benchmark index or sector wise index gives data about the stability and performance of the market.
  5. The index is affected by global reforms, economic conditions, and market volatility.

An index is a statistical measure to track the overall performance of a market, be it of shares, bonds, or commodities. 

An index does so by tracking a group of diversified but representative constituent securities from the market, in a certain weightage, to give a fair picture of the market performance.

It is also known as a benchmark for being comparable against constituents of the market, whose performances can be measured against the index.

Index meaning ?

Through index, we measure the change of a particular commodity. For example, the government uses the consumer prices index to check the rate of inflation or global hunger index, which tracks hunger globally region wise. 

In India, there are more than 7000 companies listed on NSE and BSE. The stock market index measures the performance of the stock market. The stock market indexes are grouped according to the market capitalization of the companies or stock prices or sector-wise. For example, BSE small cap is an index for small-cap companies, for the banking sector – Nifty bank index. In India, the Sensex and Nifty are large-cap indexes. 

The value of the group of stocks gives the collective value of the index. So any change in the value of shares changes the value of the index. For example, Sensex is made of the top 30 stocks, while nifty is made of the top 50 stocks. Both indexes are based on market capitalization. Each stock has different prices in the market. Therefore each stock carries different weightage in the index. The investors who show interest in the long term investment with the intention of low risk and moderate return, consider the index funds as an option for investment. 

Types of Indexes

  1. Stock market index
    1. Benchmark indexes – Sensex of BSE and Nifty of NSE are indexes for large-cap companies.
    2. Sector-wise – Nifty bank is an index for the banking sector or Nifty Auto Index
    3. Based on Market Capitalization – BSE Small Cap is an index for small cap companies.
    4. There are some broad market indices such as BSE 100, BSE 500.
  2. Bond Indexes are related to the debt market. An example of a bond index is Nifty AAA Corp. Bond Index.
  3. Commodity Index – Multi Commodity Exchange of India Limited (MCX) is an independent commodity exchange of India. E.g., MCX Metal, MCX Agri, etc.
  4. Other indexes – TRI index, total return index, which dividend yield. MSCI India index is set by Morgan Stanley Capital International has set up a global index for the Indian market.