{"id":2452,"date":"2021-01-19T17:19:57","date_gmt":"2021-01-19T17:19:57","guid":{"rendered":"https:\/\/cms.lxme.in\/decoding-stock-market-indices\/"},"modified":"2025-04-10T05:17:18","modified_gmt":"2025-04-10T05:17:18","slug":"decoding-stock-market-indices","status":"publish","type":"post","link":"https:\/\/lxme.in\/v1\/decoding-stock-market-indices\/","title":{"rendered":"Decoding Stock Market Indices"},"content":{"rendered":"\n

If we were to ask you to give us a real-time summary of the traffic situation in your city, how would you possibly do it? You wouldn\u2019t check every road in the city to find the answer, would you? The wiser thing for you to do would be to quickly check a few important roads and junctions across the city\u2019s four directions and observe how the traffic is moving.<\/em><\/p>\n\n\n\n

Similarly, if we were to ask you how the stock market is moving today, how would you answer the question? There are approximately 5,000 listed companies on the Bombay Stock Exchange and about 2,000 listed companies on the National Stock Exchange. It would be clumsy to check every company, figure out if they are up or down for the day, and then give a detailed answer.<\/p>\n\n\n\n

Instead, you would just check a few important companies across key industrial sectors. If a majority of these companies are moving up, you would say markets are up, if the majority is down, you would say markets are down, and if there is a mixed trend, you would say markets are sideways!<\/p>\n\n\n\n

So essentially identify a few companies to represent the broader markets. Every time someone asks you how the markets are doing, you would just check the general trend of these selected stocks and then answer. These companies that you have identified collectively make up the stock market index!<\/p>\n\n\n\n

Luckily you need not actually track these selected companies individually to get a sense of how the markets are doing. The important companies are pre-packaged and continuously monitored to give you this information. This pre-packaged market information tool is called the \u2018Market Index\u2019.<\/p>\n\n\n\n

An ideal index gives us minute by minute reading about how the market participants perceive the future. The movements in the Index reflect the changing expectations of the market participants. When the index goes up, it is because the market participants think the future will be better. The index drops if the market participants perceive the future pessimistically.<\/p>\n\n\n\n

A stock market index combines several stocks to create one aggregate value that investors use for measuring a market\u2019s (eg: Bombay Stock Exchange and National Stock Exchange), or a sector\u2019s (eg: energy, infrastructure, real estate) performance. <\/p>\n\n\n\n

There are two main market indices in India. The S&P BSE Sensex<\/strong> representing the Bombay stock exchange and CNX Nifty<\/strong> representing the National Stock exchange.<\/p>\n\n\n\n

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