Let’s assume that if I ask you to provide me with a summary of the current road conditions in your city, how would you go about it?
Your city has several streets and intersections, so looking through all of them would be a tedious task. A more effective approach would be to view the traffic in a few key areas in each direction. Doing this will provide you with a clearer image as to whether traffic is normal or chaotic.
By tracking a select few roads and junctions, you get an estimate of the overall traffic situation in the city!
If I were to inquire about the state of the share market, what would be your reply? With around 5,000 firms registered on the Bombay Stock Exchange and around 2,000 listed on the National Stock Exchange, it would be too cumbersome to go through all of them, establish if they are surging or slipping for that particular day and then provide a comprehensive response.
Rather than looking at all the companies in the market, you should take a quick glance at some key names from different sectors. If most of them seem to be trading higher, then you’d say that the market is on an uptrend; if most are declining, then it’s down; and if there’s no clear pattern, then the market is likely sideways or at a standstill.
Essentially, pick a handful of stocks to represent the markets in general. To get an idea of how the markets are doing, follow what these stocks do – this collective group of stocks makes up the share market index.
The Index, a global share market index, provides people with information about several of the most important stocks in the world. It enables them to track the performance of the country’s leading stocks and make decisions about their own investments.
It is not necessary to monitor chosen companies on your own to gauge the market condition. Market sentiment can be determined through the share market Index, a pre-packaged indicator that is constantly monitored.
In India, three indexes are essential: the S&P BSE Sensex (the Bombay stock exchange), Nifty 50 (National Stock Exchange) and Bank Nifty (representing the banking sector). All three are highly regarded.
Standard and Poor’s, or S&P is a credit rating agency with global reach. They are known for their technical expertise, which they have licensed to the Bombay Stock Exchange. As a result, S&P’s brand appears on its indices. NSE Indices Limited, a company related to the National Stock Exchange of India, maintains all associated indices.
The Nifty 50 is made up of the top-traded stocks on the National Stock Exchange, and shortly we’ll look at how it’s computed. A good index offers a precise, current understanding of market sentiment. The Index’s movements demonstrate how investors view what lies ahead; if they’re feeling hopeful, prices will go up; conversely, if they expect a bleak future, there will be a decline.