It helps investors understand whether the market is going up (bullish) or down (bearish).
Rather than tracking individual stocks, investors can look at market indices to get a clear picture of how the market or a particular sector is performing.
For example, NIFTY 50 includes the 50 largest Indian companies listed on the NSE and reflects the overall trend of the Indian stock market.
How Does an Index Work?
Each index consists of selected companies
Companies are assigned weightage
Index value changes based on price movement of these stocks
📈 More buying → Index rises
📉 More selling → Index falls
Why Do Investors Need Market Indices?
When investing in stocks, it can be hard to track all the companies individually.
Market indices make this easier by:
- Showing the overall direction of the market
- Measuring performance of individual sectors
- Helping investors make better decisions
- Acting as a way to compare your portfolio with the market
Market indices allow investors to see how well their investments are doing compared to the overall market.
🇮🇳 Major Stock Market Indices in India
📌 Broad Market Indices
NIFTY 50 – Top 50 companies of NSE
SENSEX – Top 30 companies of BSE
📌 Sectoral Indices
BANK NIFTY – Banking stocks
FINNIFTY – Financial services
IT NIFTY – IT companies
PHARMA NIFTY – Pharma sector
METAL NIFTY – Metal stocks
📌 Size-Based Indices
NIFTY MIDCAP 100
NIFTY SMALLCAP 100
🌍 Major Global Indices
Dow Jones – USA
S&P 500 – USA
NASDAQ – USA (Tech stocks)
Nikkei 225 – Japan
FTSE 100 – UK
What Are Global Market Indices?
Global market indices are tools that help track how stock markets are performing in different countries and regions.
They give a general idea of market trends and help investors understand how the global markets are doing.
These indices include a group of selected stocks from various countries.
They serve as a way to measure the performance of global investments and compare different markets.
For example, the MSCI World Index includes mid-cap and large-cap stocks from developed countries and covers a big portion of the global stock market.
Some popular global market indices are S&P 500, FTSE, CAC, DAX, NIFTY, and SENSEX. These indices help investors see how markets are moving, understand economic conditions, and make smarter investment choices based on worldwide trends.
Role of Global Market Indices
Global market indices act as indicators of the overall health of financial markets and economies.
Their main functions are:
- Helping investors see market trends in different regions
- Acting as a benchmark for how well a portfolio is performing
- Showing price changes in major economies
- Supporting investment products like ETFs and index funds
They also allow investors to invest in international markets, which can help reduce the risk compared to investing in just one company’s stock.
How Are Global Market Indices Calculated?
These indices are created using specific methods that are set by index committees.
The most common methods include:
- Market Capitalization Weighted Method
- Price Weighted Method
- Free-Float Market Capitalization Method
Market-capitalization weighted indices give more weight to larger companies.
Free-float methods take into account only those shares that are actually available for trading. These methods help make sure the indices fairly represent the market.
Benefits of Investing in World Market Indices
Investing in global market indices has several advantages:
- Diversifying your portfolio across different countries
- Reducing the risk from local market changes
- Getting exposure to global industries like technology, healthcare, and energy
- Investing in a cost-effective way through index funds and ETFs
- Gaining from currency appreciation
Index investing allows you to minimize the risk that comes from the performance of individual companies.