What are stock indices and how are they calculated?

To gauge the movement of all the stocks at any given time is a cumbersome process for an average investor. Hence, representation has been designed which encompasses a basket of similar stocks, to indicate the trend of the market. This representation is termed as a Stock Market Index or simply, Index.

The value of the Index is calculated from the value of that particular basket of stocks. The daily changes in the price of the stocks change the index value and hence represents the changes in the stock market. The two major indices in Indian Stock Market are the S&P BSE SENSEX, represented by a basket of 30 stocks and the NSE Nifty50, represented by a basket of 50 stocks. There are many other Nifty indices like the Nifty Bank, Nifty Midcap50, Nifty Mid100, Nifty Infra, Nifty IT, Nifty Realty etc.

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