Stock Market Index

A stock index or stock market index is a measurement of a section of the stock market. From among the stocks listed on the exchange, some similar stocks are selected and grouped together to form an index.

The values of the grouped stocks are used to calculate the value of the index (typically a weighted average). Any change in the price of the stocks leads to a change in the index value. An index is thus indicative of the changes in the market and used by investors and financial managers to describe the market and to compare the return on specific investments.

Sorting

In a share market, there are thousands of companies listed. It is very difficult for an investor to differentiate between all of those and pick one or two to buy. And then sort them out. This is where indices come into the picture. Companies and their shares are classified into indices based on key characteristics like size of company, sector or industry they belong to.

Representation

An Index act as a representative of the entire market or a certain segment of the market. In India, the BSE Sensex and the NSE Nifty are considered the benchmark indices. They are considered to represent the overall market performance.

Comparison

An index makes it easy for an investor to compare performance. Indices can be used as a benchmark to compare against performance. For example, in India the Sensex is generally used as a benchmark. So, to find if a equity has outperformed the market, you simply compare the price trends of the index and the stock.

Also, an index can also be used to compare a set of stocks against a benchmark or another index. For example, on a given day, the benchmark index like Sensex may jump 300 points, but this rally may not extend to a certain segment of stocks like pharma stocks. Then, the fall in the value of index representing pharma stocks could be used for comparison rather than each individual stocks. This also helps investors identify market trends easily.

Reflection

Investor sentiment is a very important aspect of stock market movements. This is because, if sentiment is positive, there will be demand for a stock. This will then lead to a increase in prices. It is very difficult to gauge investor sentiment correctly. Indices help reflect investor’s mood, not just for the overall market, but even sector wise and across company sizes. You can simply compare an index with a benchmark to see if has underperformed or outperformed. This will, in turn, reflect investor sentiment.

Passive investment

Many investors prefer to invest in a portfolio of securities that closely comparable to an index. This process of investment is called passive investment. An index portfolio helps investors cut down cost of research and equity selection process. They rely on the index for stock selection for their investment. As a result, portfolio returns will match that of the index. For example, if Sensex gave 9 % returns in 6 month, an investor’s portfolio that resembles the Sensex is also likely to give the same amount of returns. Indices are also used to construct mutual funds and exchange-traded funds.

Different types of Indices in India

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been in existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading in 1994. However, both exchanges follow the same trading mechanism, trading hours, settlement process, etc. The BSE has about 4,700 listed firms, whereas the rival NSE has about 1,200. Out of all the listed firms on the BSE, only about 500 firms constitute more than 90% of its market capitalization.

Following are the different Indices India:

Broad Market Indices

These indices are broad-market indices, consisting of the large, liquid stocks listed on the Exchange. They serve as a benchmark for measuring the performance of the stocks or portfolios such as mutual fund investments.

In Bombay Stock Exchange (BSE)

SENSEX

The BSE SENSEX (S&P Bombay Stock Exchange Sensitive Index), also-called the BSE 30 or simply the SENSEX, is a free float market weighted stock market index of 30 well established and financially sound companies listed on Bombay Stock Exchange . The 30 component companies which are some of the largest and most actively traded stocks, are representative of various industrial of the Indian economy. Sensex is the stock market index indicator for the BSE. It was first published in 1986.

Other Indices:

• S&P BSE Consumer Discretionary Goods & Services
• S&P BSE Basic Materials
• S&P BSE LargeCap
• S&P BSE AllCap
• S&P BSE MidCap
• S&P BSE SmallCap

In National Stock Exchange (NSE)

NIFTY

The NIFTY 50 index is National Stock Exchange of India’s benchmark stock market index for Indian equity market. Nifty is owned and managed by India Index service & products (IISL). The NIFTY 50 covers 13 sectors of the Indian economy and offers investment managers exposure to the Indian market in one portfolio.

Nifty is the market indicator of NSE. It ideally is a collection of 50 stocks but presently has 51 listed in it. It is also referred to as Nifty 50 and CNX Nifty by some as it is owned.

Other Indices

• NIFTY 50 Index
• NIFTY Next 50 Index
• NIFTY 100 Index
• NIFTY 200 Index
• NIFTY 500 Index
• NIFTY Midcap 150 Index
• NIFTY Midcap 50 Index
• NIFTY Full Midcap 100 Index
• NIFTY Free Float Midcap 100 Index
• NIFTY Small cap 250 Index
• NIFTY Small cap 50 Index
• NIFTY Full Small cap 100 Index
• NIFTY Free Float Small cap 100 Index
• NIFTY Large Midcap 250 Index
• NIFTY Mid Small cap 400 Index

Sectoral Indices

The Market Sector Indices summarizes the performance of stocks grouped by specific market sectors. This allows investors to benchmark the performance of a particular stock market sector or industry.

In National Stock Exchange (NSE)

Sectoral Indices in NSE are:

• Nifty Auto Index: The Nifty Auto Index is designed to reflect the behavior and performance of the Automobiles sector which includes manufacturer of cars & motorcycles, heavy vehicles, auto ancillaries, tyres, etc. The Nifty Auto Index comprises of 15 stocks that are listed on the National Stock Exchange.
• Nifty Bank Index: Nifty Bank Index is an index comprised of the most liquid and large capitalized Indian Banking stocks. It provides investors and market intermediaries with a benchmark that captures the capital market performance of Indian Banks. The index has 12 stocks from the banking sector which trade on the National Stock Exchange.
• Nifty Financial Services Index: The Nifty Financial Services Index is designed to reflect the behavior and performance of the Indian financial market which includes banks, financial institutions and housing finance and other financial services companies. The Nifty Finance Index comprises of 15 stocks that are listed on the National Stock Exchange (NSE).
• Nifty FMCG Index: FMCGs (Fast Moving Consumer Goods) are those goods and products, which are non-durable, mass consumption products and available off the shelf. The Nifty FMCG Index comprises of maximum of 15 companies who manufacture such products which are listed on the National Stock Exchange (NSE).
• Nifty IT Index: Information Technology (IT) industry has played a major role in the Indian economy. In order to have a good benchmark of the Indian IT sector, IISL has developed the Nifty IT sector index. Nifty IT provides investors and market intermediaries with an appropriate benchmark that captures the performance of the IT segment of the market. Companies in this index are those that have more than 50% of their turnover from IT related activities like IT Infrastructure, IT Education and Software Training , Telecommunication Services and Networking Infrastructure, Software Development, Hardware Manufacturer’s, Vending, Support and Maintenance.
• Nifty Media Index: The Nifty Media Index is designed to reflect the behavior and performance of the Media & Entertainment sector including printing and publishing. The Nifty Media Index comprises of stocks that are listed on the National Stock Exchange (NSE).
• Nifty Metal Index: The Nifty Metal Index is designed to reflect the behavior and performance of the Metals sector including mining. The Nifty Metal Index comprises of maximum of 15 stocks that are listed on the National Stock Exchange.
• Nifty Pharma Index: Pharmaceuticals sector is one of the key sectors where Indian companies have created a global brand for themselves besides software. Indian companies have taken advantage of the opportunities in the regulated generics market in the western countries and made deep inroads especially in providing low cost equivalents of expensive drugs. Pharma outsourcing into India and low cost Healthcare services are expected to be the key areas of growth in the near future. In addition, the inherent potential of biotechnology has also attracted many new companies and this is also a key growth area for Indian companies. IISL has developed Nifty Pharma Index to capture the performance of the companies in this sector.
• Nifty Private Bank Index: The Nifty Private Bank Index is designed to reflect the performance of the banks from private sector. The Nifty Private Bank Index comprises of 10 stocks that are listed on the National Stock Exchange (NSE).
• Nifty PSU Bank Index: The Indian banking system, reaping the benefits of strong credit off take and improved risk management practices. The public sector banks with their existing widespread branch network have been primarily increasing their IT related expenditure. The core profitability of the public sector banks continues to rise on the back of improving operating efficiencies. Consolidation would further improve PSU banks’ competitive edge against their private counterparts in servicing customers both retail and corporate in the international and domestic markets. Recognizing these changing dynamics of Indian banking industry, IISL has developed Nifty PSU Bank Index to capture the performance of the PSU banks.
• Nifty Realty Index: Real estate sector in India is witnessing significant growth. Recent dynamics of the market reflected the opportunity of creating wealth across real estate companies, as proven by recent listings of real estate companies resulting into prominent growth in public funds and private equity. The main growth thrust is coming due to favorable demographics, increasing purchasing power, existence of customer friendly banks & housing finance companies, professionalism in the real estate sector and favourable reforms initiated by the government to attract global investors.

In Bombay Stock Exchange (BSE)

Sectoral Indices in NSE are:

• S&P BSE TECK
• S&P BSE Information Technology
• S&P BSE CONSUMER DURABLES
• S&P BSE Fast Moving Consumer Goods
• S&P BSE POWER
• S&P BSE India Infrastructure Index
• S&P BSE OIL & GAS
• S&P BSE AUTO
• S&P BSE PSU
• S&P BSE Healthcare
• S&P BSE CAPITAL GOODS
• S&P BSE BANKEX
• S&P BSE METAL
• S&P BSE REALTY

3. Thematic Indices

Our Thematic Indexes reflect the performance of various broad investment themes. Thematic investing seeks to identify specific social, economic, industrial, environmental or demographic trends and their long-term secular, cyclical and structural influences on the world’s economies and markets.

In National Stock Exchange (NSE)

• Nifty Commodities Index
• Nifty CPSE Index
• Nifty Corporate Group Indices
• Nifty Energy Index
• Nifty India Consumption Index
• Nifty Infrastructure Index
• Nifty MNC Index
• Nifty PSE Index
• Nifty Services Sector Index
• Nifty100 Liquid 15 Index
• Nifty Midcap Liquid 15 Index
• Nifty Shariah 25 Index
• Nifty50 Shariah
• Nifty500 Shariah Index

In Bombay Stock Exchange (BSE)

• S&P BSE GREENEX
• S&P BSE CARBONEX

4. Strategy Indices

Strategy indices are designed on the basis of quantitative models / investment strategies to provide a single value for the aggregate performance of a number of companies.

In National Stock Exchange (NSE)

• NIFTY Multi-Factor Indices
• NIFTY 50 Equal Weight Index
• NIFTY 100 Equal Weight Index
• NIFTY 100 Low Volatility 30 Index
• NIFTY Alpha 50 Index
• NIFTY 50 Arbitrage Index
• NIFTY 50 Futures Index
• NIFTY 50 USD Index
• NIFTY Dividend Opportunities 50 Index
• NIFTY High Beta 50 Index
• NIFTY Low Volatility 50 Index
• NIFTY 50 Dividend Points Index
• NIFTY Quality 30 Index
• NIFTY50 Value 20 Index
• NIFTY Growth Sectors 15 Index
• NIFTY50 PR 1x Inverse Index
• NIFTY50 TR 1x Inverse Index
• NIFTY 50 PR 2x Leverage Index

In Bombay Stock Exchange (BSE)

• S&P BSE IPO
• S&P BSE SME IPO
• S&P BSE DOLLEX 30
• S&P BSE DOLLEX 100
• S&P BSE DOLLEX 200