An index is a tool used in financial markets to measure and represent the price movements of various financial instruments or assets, such as stocks, bonds, commodities, or other market products. These indexes serve several purposes and are widely used in the finance industry for various applications. Here is an overview of what an index is and its uses:
What is an Index?
An Index is used to give information about the price movements of products in the financial, commodities or any other markets.
Financial indexes are constructed to measure price movements of stocks, bonds, T-bills and other forms of investments.
Stock market indexes are meant to capture the overall behaviour of equity markets.
A stock market index is created by selecting a group of stocks that are representative of the whole market or a specified sector or segment of the market. An Index is calculated with reference to a base period and a base index value. [For Ex. Nifty 50’s Base Period = 3rd Nov,1995, Base Value = 1000;
Nifty Next 50’s Base Period = 4th Nov, 1996, Base Value = 1000;
Nifty Total Market’s Base Period = 1st April, 2005, Base Value = 1000]
Uses of a Stock Market Index?
- Provide a historical comparison of returns on money invested in the stock market against other forms of investments such as gold, debt etc.
- Used as a standard/benchmark against which to compare the performance of an equity funds/ETF/PMS schemes.
- Lead indicator of the performance of the overall economy or a sector or segment of the economy.
- Modern financial applications such as Index Funds/Index ETFs, Index Futures, Index Options play an important role in financial investments and risk management.
NSE Indices Limited (www.niftyindices.com)
- Is the largest index provider of India
- Managing largest no. of Indian Indices (350+) under the Nifty Brand
Various NSE Indices are:
| Category | Brief | Names of various indices |
| Broad Based Indices | Consists of most liquid stocks listed on NSE as per various market capitalization | Nifty 50; Nifty Next 50; Nifty 100; Nifty 500; Nifty Midcap 50; Nifty Smallcap 50; Nifty Midcap150; Nifty Smallcap 250; Nifty Microcap 250; Nifty Total Market |
| Sectoral Indices | Reflect the performance of portfolio of stocks related to certain sectors or industries | Nifty Bank; Nifty Auto; Nifty Financial Services; Nifty FMCG; Nifty Healthcare; Nifty IT; Nifty Media; Nifty Metal; Nifty Pharma; nifty Private Bank; Nifty PSU Bank; Nifty Realty; Nifty Oil & Gas; Nifty Consumer Durables |
| Thematic Indices | Exhibit the performance of companies that belong to specific investment themes such as social, economic, digital etc | Nifty Aditya Birla Group; Nifty Tata Group; Nifty Mahindra Group; Nifty Commodities; Nifty CPSE; Nifty Energy; Nifty Housing; Nifty India Defense; Nifty India Consumption; Nifty India Digital; Nifty India Manufacturing; Nifty PSE; Nifty REITs & InvITS; Nifty Services Sector; Nifty SME Emerge; Nifty 50 Shariah |
| Strategy Indices | Designed on the basis of quantitative models / investment strategies to provide a single value for the aggregate performance of a number of companies. | Nifty Alpha 50; Nifty200 Momentum 30; Nifty High Beta 50; Nifty Low Volatility 50; Nifty50 USD; Nifty50 Value 20; Nifty50 PR 1*Inverse; Nifty50 PR 2*Leverage |
Besides the above-mentioned Equity Indices, there are a number of Fixed Income Indices as well under various categories viz G-Sec Indices; Corporate Bond Indices; Money Market Indices; SDL Indices etc
Author Bio
