Types of Stock Market Index

With the increasing interest in the stock market, a lot of companies are now getting registered on the stock exchanges. But it is obvious that it is often difficult to monitor all of them at once. There are various types of stock market index to make this very convenient.

But what is a stock market index?

Stock market index is a collection of the top stock in the market and works as a general indicator. It is useful in studying how the overall market is performing, the sentiments of the market, and also what you expect from your individual stock.

Now, let us talk about the different types of stock market index.

Types of Stock Market Index in India

The stock market in India can be classified into three different categories namely,

• Benchmark indices
• Sectoral Indices
• Market- Cap Based Indices

These are the major indices that help an investor monitor almost everything essential in the stock market. Let us now talk about the three indices in detail.

1. Benchmark Indices

If you are accustomed to the Indian stock market, you must have come across the terms NIFTY and SENSEX. These two are the major two indices in the stock market, hence also referred to as the benchmark indices. These are called benchmark indices also because they are very concise and can monitor the market in depth.

NIFTY is the collection of the largest 50 companies in the stock market. All the 50 scrips are listed on the National Stock Exchange (NSE). You can easily understand the sentiments of the market with respect to NIFTY.

Another benchmark index in the stock market is SENSEX, which is also known as the Sensitive Index. Just like NIFTY is the collection of top 50 companies, SENSEX is a collection of top 30 companies. All these companies are listed on the Bombay Stock Exchange (BSE). It is also the oldest stock market indexing India.  

There are various factors that are considered when these stock market indexes are calculated. The major factor on which the calculations depend is the market capitalization.

SENSEX was launched n 1986 and after its successful 10 years of completion, NIFTY was also launched for the stock market enthusiasts.

Overall these years, both the benchmark indices have seen a lot of growth and have managed to yield great returns for a lot of investors.

So, considering all the tips for stock market investment, keeping an eye on the benchmark indices is one of the most important ones.

2. Sectoral Indices

There are various companies of different sectors listed in the Indian stock market. Now to keep the process of monitoring smooth, the indices are further classified into different sectors.

These serve as indicators regarding the market behavior and sentiments related to one particular sector and the individual stocks associated with it.

Some of the examples of sectoral indices are NIFTY Pharma, NIFTY Auto, NIFTY IT, NIFTY Media, NIFTY Energy.

The performance of these sectoral indices can vary according to different situations. Now consider the year 2020, when the pandemic just started. There was a lot of fear associated with the same. This largely impacted the stock market, where all the sectors saw a downfall. But NIFTY pharma was the one sector that showed positive growth because of all the medicinal requirements.

3. Market-cap based indices

Market capitalization is one of the most important factors in the stock market and it divides the companies into three major categories, small-cap, mid-cap, and large-cap companies.

According to the market capitalization, there are various indices in the market. This makes it easier for the people who want to check the performance of companies according to their market cap.

Some of the famous market-cap based indices,

• Large Cap Indices- NIFTY 50, NIFTY 100, NIFTY 200
• Mid Cap Indices- NIFTY Mid cap 50, NIFTY mid cap 150, NIFTY mid cap 100
• Small-Cap Indices- NIFTY small cap 150, NIFTY small cap 50, NIFTY small cap 250

These are the various types of stock market indexes in the stock market and you can use one as an indicator and then make calculative decisions accordingly.

How Stock Market Index Is Calculated

Stock market indices play a major role in indicating market behavior and thus help the investor make a calculative decision. But the question is, how is the stock market index calculated?

There are different types of stock market index and therefore, the calculation also varies. Let us have a look at how the two benchmark indices are calculated.

• Sensex= (total free-float market capitalization/ Base market capitalization) x Base index value
• NIFTY- (Current Market Value/Base Market Capital) x 1000

Using these calculations an index value is defined and the market enthusiasts can thus make their decisions accordingly.

Conclusion

The stock market indices are required so that there is everything sorted in the stock market. Different types of stock market index not only help in proper sorting and management but also helps in the representation of particular companies. The investors can pick the type according to their choice and earn money from the stock market.

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