Market Index How Indexing Works, Types, and Examples in share market

  1. Stock Markets Basic
    1. Invest:3 benefits of investing for your future
    2. Types of Investment Diversification asset classes
    3. What is the share market? What Does It Do and How Does It Work with examples
    4. SEBI What is Securities and Exchange Board of India
    5. Stock Broker Financial Intermediaries or Market Intermediaries role in share market
    6. Depository and types of Depository Participants in India
    7. ICCL, NSE Clearing Limited and Bank’s role as Financial intermediary
    8. Angel Investors What are their roles with examples
    9. Venture Capitalist Who Are They and What Do They Do
    10. CAPEX Understanding Capital Expenditure with examples
    11. Private Equity Explained Understanding PE With Examples
    12. Initial Public Offering (IPO): What It Is and How It Works
    13. Launch IPO Why Do Companies Go Public
    14. IPO process how Initial Public Offering works in India
    15. What is IPO Key Terms Related to Initial Public Offering
    16. What is the share market?
    17. Share price understanding how does prices increase or decrease with examples
    18. Share trading: How Does It Work? with examples
    19. Types of traders in share market
    20. Market Index How Indexing Works, Types, and Examples in share market
    21. Share market indices importance and key terms
    22. Index construction methodology
    23. Share market terminology
    24. Share market terminology for beginners
    25. How to Trade Shares for Beginners
    26. Clearing and settlement process in the Indian Share market
    27. Stock selling learn What happens when you sell a stock
    28. Corporate actions in share market and impact on prices
    29. Bonus Issue of Shares Explained and How They Work
    30. Stock Split and Buyback of Shares What you need to know
    31. Monetary Policy by RBI Repo Rate, reverse repo rate, Cash reserve
    32. Inflation and IIP explained with examples
    33. Purchasing Managers Index, Budget, Corporate Earnings Announcement and Non-Financial events
    34. Stock market basics for beginners
    35. Offer for Sale and Follow-on Public Offer explained with examples
    36. Rights Issue and its relevance to shareholders explained with examples
Marketopedia / Stock Markets Basic / Market Index How Indexing Works, Types, and Examples in share market


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 

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.