Indices indicate the true position of the market. The biggest and best companies lead the economy and financial health of the country, that is why only good companies are in the index.
As the question is simple, let the answer be too. The indices of the stock market are the indicators of their respective stock exchange. Thousands of companies are listed in the stock market of different industries but the indicators are just one measure of the few bests performing companies.
Indices indicate the true position of the market. the biggest and best companies lead the economy and financial health of the country, that is why only good companies are in the index.
Just like a company display their best products for sale similarly index include the best company of its genre.
Types of indices –
There are different types of indices having similar characteristics let us see what are they:
- Benchmark indices-A benchmark index is a group of stocks used to measure the performance of other stocks or stocks in the market. They are a measure of the performance of mutual funds, stocks, bonds, and securities in the stock market. for example, Nifty 50, S&P BSE-200.
- Sectoral indices- these indices comprise of stocks that belong to one particular sector. For example- Nifty bank, Nifty auto, S&P BSE PSU, and more.
- Market cap indices- this index includes companies on basis of market capitalization. Market cap is the market value of the public company listed. For example- nifty mid-cap, nifty large-cap, S&P BSE midcap, etc.
- Other indices- some other indices include nifty500, BSE 500, nifty 100, etc.
Why do we need stock indices?
There are hundreds of companies listed on the stock exchange, how can one decide which company is good, which company is performing better. The stock index makes it’s easy for investors to make a selection of companies as the company of similar characteristics are grouped under the index.
The stock market index is the representation of the best stock of the market, it makes it easy for investors to choose stocks, once you are done with the selection of stocks you can further make a fundamental analysis of the company you are willing to invest in oi.
With the help of indices, you can make a comparison of different companies, investors can look for the best company further check other indicators like different ratio its annual reports, with the help of stock screener you can easily save your time as all these indicators are available at one place, Ticker by finology is a stock screener where you can freely register yourself and benefit from its exclusive services.
Stock indices are indirect indicators of investors’ emotions, if there is positive movement in any indices means investors are investing more, for example, if Nifty auto is moving upward, it indicates investors are buying stocks of that sector and prices are likely to move up.
If you are new to the stock market or you are not able to give time, the stock market index helps to make a passive investment where your portfolio consists of different indices and you can keep track of it.
The stock index is the foundation of the investment environment. This is not only an advantage but also a necessity. Without it, the investment community will be thrown into chaos and investors will flock to find good stocks to invest in.
The importance of stock indices is to facilitate investment.
ABOUT THE AUTHOR: S. Vishwa is a web marketing analyst at Finology Ventures. With 5+ years of web marketing experience, joined a Fintech company to help people to learn and earn more.