Basics of Stock Market 13: What are stock market indexes, why are they important?
An index is a method to track the performance of a group of assets in a standard way. Indexes typically measure the performance of a basket of securities/stocks intended to replicate a certain area of the market. It is a weighted average representative sample of the market.
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What is an index?
Like in the last article we have seen the consumer price index (CPI). This is a basket of goods and services represented to show what a typical consumer will buy over a given time period. By seeing the CPI, we can know has the prices increased or decreased over the same period of time.
In the stock market, it is used to measure the performance of a basket of stocks. If we are talking about the Indian market, Nifty 50 is used to measure the performance of the top 50 stocks in India. These 50 stocks are listed based on the free-float capitalization method. Let’s take a deep dive into 2 of the most famous indexes in India.
NSE- Nifty 50
The Nifty 50 index was launched on 22 April 1996 and is one of the many stock indices of Nifty. The NIFTY 50 is a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange. Nifty 50 is owned and managed by NSE Indices, which is a wholly-owned subsidiary of the NSE Strategic Investment Corporation Limited.
The NIFTY 50 index covers 13 sectors (as of 30 April 2021) of the Indian economy and offers investment managers exposure to the Indian market in one portfolio. The NIFTY 50 Index gives a weightage of 39.47% to financial services, 15.31% to Energy, 13.01% to IT, 12.38% to consumer goods, 6.11% to Automobiles, and 0% to the agricultural sector.
The base period for the NIFTY 50 index is 3 November 1995, which is launched after one year of operations of the National Stock Exchange Equity Market Segment. The base value of the index has been set at 1000 and a base capital of ₹ 2.06 trillion.
These are the stocks in Nifty 50 as of April 2021.