What is a Market Index?
A Market Index is a real-time indicator or measure of the performance of the overall market/ segment of the market. By taking a representative group of securities into consideration, an index is used as a benchmark against which the performance of the market, individual portfolios, and individual securities can be compared. It is calculated based on the prices of the securities included and helps investors assess the overall market health and sentiment.
For example, if the value of your portfolio goes up by 10%, while the market index only moves up by 5%. Here, your portfolio is said to be doing better than the general market.
In the Indian stock market, the two major exchanges, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), have their own indices. Other types of indices include sectoral indices, thematic indices, strategy indices, fixed income indices, hybrid indices, and broad market indices.
Benchmark indices represent the country's overall stock market trend. They include:
- The market index of the BSE is the BSE Sensex. Also known as the Sensitive Index, it comprises of 30 top performing, large cap stocks. It was launched in 1996, making it the oldest index in the country. The base year for the index was 1978-79 with a base value of 100. It is calculated using the 'Free-Float Market Capitalization' method.
- Similarly, NSE has the NIFTY 50 index which comprises of the 50 large cap stocks across key sectors of the economy, listed on NSE. It was launched in 1996 with a base value of 1000. Like the BSE Sensex, it is calculated using the 'Free-Float Market Capitalization' method.
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