Hi, When in the market, we usually come across one common question, that is, how did the stock markets perform or what was the market movement? There are about 5000 listed companies in the Indian Stock Market, and it would be a herculean task to track the performance of all the companies to determine how the overall market performed.

Hi, When in the market, we usually come across one common question, that is, how did the stock markets perform or what was the market movement? There are about 5000 listed companies in the Indian Stock Market, and it would be a herculean task to track the performance of all the companies to determine how the overall market performed. To make things simpler Indices were constructed. So, what is meant by Indices? Market Indices is a collection of a group of stocks that helps to measure the performance of the overall market. It also acts as an economic barometer judging the overall performance of the economy.

It also makes it easy for investors to compare the performance of individual stocks against the performance of the overall market. The major indices in India are the SENSEX and Nifty 50 that reflect the performance of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Here, we will be discussing the major indices, that is, SENSEX and Nifty 50. The Sensex stands for Sensitive Index and is commonly known as BSE 30.

It is the market index comprising of 30 well established and financially sound companies, thus representing a sample of the overall companies traded in the BSE (Bombay Stock Exchange). While on the other hand, Nifty 50 as the name suggests consists of 50 well-established and financially sound companies listed on NSE (National Stock Exchange of India). If the Sensex shows positive momentum, it means that the prices of the stocks of most of the major companies listed on the BSE have gone up, and vice-versa.

Similarly, when Nifty 50 rises, it indicates that the stock prices of most of the major stocks on NSE has gone up, and vice-versa. Moreover, when Sensex and Nifty goes up it also indicates economic growth of the country, and a declining trend might point towards a slow-down or depression. A stock has to qualify certain stated criteria to be a part of an index, and if it fails to maintain the criteria it gets replaced by a better alternative that qualifies the prerequisites. Now once the stocks are selected they are assigned certain weightage.

Weightage in simpler terms defines how important a particular stock is in respect to others. Indices provide snapshots of the overall market activities and also reflect investors’ sentiments over time. Other important roles of the Indices are that they help investors in choosing the right stock among the galore of stocks available in the market. The indices act as a filter that helps investors to differentiate companies based on their price performance, market capitalization and others.

Always remember that stock indices, even though quoted as representing the overall market, reflects only a portion of the actual market, as they typically comprise of a sample of stocks based on certain categories of the market. Therefore, sometimes one may see that the price of some stock reports new highs, while the overall index remains down, on the very same day.