A fair knowledge of stock market indices become all the more important for an investor when it comes to betting his hard-earned money on a specific type of stocks. It’s the market indices that help the investor carefully choose a stock that is in demand and performing by comparing against one another in terms of price trends, market value and precise performance.
What are stock market indices?
When a list of similar stocks is categorized to represent a specific sector or the whole of the market, it is called a market index. Different types of stocks are categorized differently. This sorting of the varied stocks is done in terms of market capitalization, sector and size of the companies to bring about efficiency and convenience to all. Popular indices in BSE are BSE Sensex, BSE 100, BSE 200, BSE 500, BSE IPO, BSE Mid Cap and BSE Small Cap while major NSE indices are Nifty, CNX Nifty Junior, S and P CNX 500, S and P CNX Defty and CNX Midcap 200.
Why do we need indices?
Indices play a vital role in identifying price trends of a particular section of the market and its overall value. They are used by investors and finance wizards as a tool to compare, categorize, represent, and for passive investment.
- Comparison–An index makes the job a lot easier, when it comes to comparing the performance of certain segment of stocks with that of another. Upon comparison, an investor gets valuable information with regards to price trends, market value and the performance of specific stocks or other indices.
- Categorization – Indices help categorize thousands of listed companies so that an investor can easily choose one or a list of companies from a particular category. Categorization of the companies is done on the basis of certain key factors like size and sector of companies, market capitalization, so on and so forth.
- Representation – An index can represent a certain section or segment of the market or the whole of the market. For example – Sensex, the major BSE index, represents Free-float market capitalization. CNX 100 is a representative of Broad Market while Market Capitalization is represented by NSE Mid cap and BSE Small-cap.
- Passive Investment –Passive Investment is equally popular among certain investors who prefer playing safe by investing in securities. This requires less amount of research on the part of the investors as they depend heavily on an index for stock selection.
List of Important Stock Market Indices in the World
- Dow Jones – Dow Jones, a price weighted index, is one of the oldest and extremely popular indices in the world. It consists 30 of the biggest companies of the United States.
- The S & P 500 – This index comprises a total of 500 stocks of the U.S. stock market. The simple fact that the S&P 500 is a representative of almost 80% of the total value of U.S. stock markets speaks volume of its prominence.
- Nasdaq Composite– Another noted index in the world is Nasdaq Composite from Nasdaq stock exchange U.S. It is particularly famous for having a significant portion of technology stocks in the group.
- Russel 2000–Russel 2000 is widely known and acknowledged in the world for the representation of comparatively smaller stocks.
- MSCI – A market cap weight index, MSCI World consists of stocks from as many as 23 countries.
- Hang Seng – Hang Seng Index of Hong Kong Stock Market is another name to reckon with among major world indices.
- Nikkei –Nekkei also known as Nekkei 225 or Nekkei Stock Average is a price –weighted index for Tokyo Stock Exchange. It is hailed as one of the fastest growing market indices in the world today.
Indices are a reflective of stock market movement, market value and investors’ sentiments in general. A careful study of daily movements of indices offers a great deal of insight to an investor. It helps him strategics his next move and take a better decision. Indira Securities is a noted and esteemed financial services provider. For those, looking forward to enjoying quality services, it is a one stop solution. Open a Demat account with us to have a sustained and gratifying experience. You can also call or email us for any further information.