Have you ever thought why people say that stock market is trending? There may be more than thousands of companies listed in exchange, each of them fluctuating independently, some may rise and some may fall.
How the overall trend is generalized.?
Here index comes into the picture.An Index is a measure to analyze market sentiments, economic condition, and growth prospect in an economy. An Index gives a generalized picture of price fluctuations experienced by individual security representing in the index. It gives a track of the performance of companies and overall growth. An index can have any number of companies.
Talking about Indian stock market, the two major indices include SENSEX and Nifty 50.
Remember we talked about stock exchanges BSE and NSE in one of my posts.
I would now like to mention that BSE is better known for SENSEX and NSE for Nifty 50
So let’s peep a little into the individual index and what do they signify.
SENSEX and NIFTY
When you hear about SENSEX, it is a benchmark index of BSE and comprises of 30 well established and financially strong companies of India. These usually includes the strong and most actively traded companies in India. They altogether represent the economy of the country.
When you hear SENSEX fall, that can be interpreted as the collective majority of companies constituting the index are facing low trend called bearish market and vice versa termed as a bullish market.
This helps us to understand where the market is heading towards and you can check the status of your stocks.
You can get the list of those 30 companies here
Similar with Nifty 50 which is the benchmark index of NSE. It comprises of 50 major securities of India, accounting for 13 sectors of the economy.
You can get the list of those 50 companies here
So does the exchange runs only on one index?
It’s not the case. There are many indices categorized according to a similar type of companies.
You can get the complete list of indices by BSE here
And for NSE click here
What should you do with these Index Points?
So as an individual investor what bothers you to look at the index?
When you observe any index say SENSEX you will figure out that there are some points given to the index that represents the current status of the market. It gives a picture of market sentiments, trend and where the market is heading or will reach in coming future.
These points have a logical calculation from which it is derived. It follows free float capitalization methodology.
So when the market started on the very first day Sensex point was kept 100 which kept on growing to what it is today.
You might have noticed the index points sometimes goes up causing bullish market sentiment and sometimes fall down framing bearish market sentiments.
But why these points keep on changing? What drives the market to change?
Who decides the trend formation in a market?
These are some key points.
Click here to know the strategies to invest in the market.
So the bottom line is if you know and understand the fluctuations of indices you understand the market, and if you understand the market you are no more a gambler but a good investor.