What Is Index in Stock Market? NIFTY 50, SENSEX, Examples
When you read news about financial news in India, you often read the news that Nifty closed above 22,000 or Sensex fell 500 points. However, what precisely does that mean? What is index in stock markets and how does it indicate the entire economy?
An index is simply a yardstick of performance of a chosen set of stocks representing a market, industry or a theme. The economic barometers in the Indian stock market are such indices as Nifty 50 and Sensex.
They assist the investors to know whether the market is growing, shrinking or moving at a steady position. In this ultimate guide, we shall discuss how many index in indian stock market, Indian stock market index and reasons as to why studying indices is important among traders and long-term investors.
What is Index in Stock Market?
An index of a stock market is a statistical tool used to monitor the performance of a portfolio of stocks that are chosen.
Investors do not examine thousands of listed companies instead, they examine an index to determine the direction of the market.
Simple Definition:
An index is a performance of a group of shares chosen on the basis of a factor like size, industry or theme.
For example:
- Nifty 50 is the best 50 large-cap companies in the NSE.
- Sensex is the group of 30 big companies of BSE.
In case the majority of companies in the index appreciate, the index rises. When the majority of them fall, the index goes down.
How many index in indian stock market? Major Categories
Indian stock market index has multiple indices across exchanges and sectors.
The two main stock exchanges are:
- National Stock Exchange (NSE)
- Bombay Stock Exchange (BSE)
Each exchange maintains several indices.
1. Broad Market Indices
These represent the overall market.
Index | Exchange | Number of Stocks | Represents |
Nifty 50 | NSE | 50 | Top large-cap companies |
Sensex | BSE | 30 | Top large-cap companies |
Nifty Next 50 | NSE | 50 | Next large-cap companies |
Nifty 100 | NSE | 100 | Large-cap segment |
Nifty 500 | NSE | 500 | Broad Indian market |
2. Sectoral Indices
Sectoral indices track specific industries.
NSE Sectoral Indices:
- Nifty Bank
- Nifty IT
- Nifty FMCG
- Nifty Pharma
- Nifty Auto
- Nifty Metal
- Nifty Realty
- Nifty Energy
- Nifty PSU Bank
BSE Sectoral Indices:
- BSE Bankex
- BSE IT
- BSE Healthcare
- BSE Power
Sectoral indices assist investors in how the industry trends.
As an example: When Nifty IT is on an increase as Nifty FMCG is declining, it shows that there is strength in the stocks of technology and weakening of consumer goods.
How Many Index in Indian Stock Market?
There are over 200 indices across NSE and BSE combined.
The Indian stock market index include:
- Broad market indices
- Midcap and smallcap indices
- Sectoral indices
- Thematic indices
- Strategy-based indices
Examples:
Category | Examples |
Large Cap | Nifty 50, Sensex |
Mid Cap | Nifty Midcap 100 |
Small Cap | Nifty Smallcap 100 |
Sectoral | Nifty Bank, Nifty IT |
Thematic | Nifty Infrastructure, Nifty Consumption |
Strategy | Nifty Alpha 50, Nifty Low Volatility |
The Indian stock market index ecosystem is vast and designed to represent different investment strategies.
How Is the Value of an Index Derived?
This is one of the most important concepts for investors.
Indian indices such as Nifty and Sensex use the Free-Float Market Capitalization Method.
Let’s break this down.
Step 1: Market Capitalization
Market Cap = Share Price × Total Shares Outstanding
Example:
If a company has:
- Share price = ₹1,000
- Total shares = 1 crore
Market Cap = ₹1,000 × 1 crore = ₹1,000 crore
Step 2: Free-Float Market Capitalization
Not all shares are available for public trading.
Promoters, government, and insiders hold some shares.
Free-float market cap includes only shares available for trading.
Formula:
Free Float Market Cap = Market Cap × Free Float Factor
If free float is 60%:
₹1,000 crore × 0.60 = ₹600 crore
Step 3: Index Calculation Formula
Index Value = (Current Free Float Market Cap / Base Market Cap) × Base Index Value
Where:
- Base year is fixed
- Base index value is usually 100 or 1000
For example:
If base market cap = ₹10,000 crore
Current market cap = ₹2,00,000 crore
Base value = 1000
Index Value = (2,00,000 / 10,000) × 1000
= 20 × 1000
= 20,000
This is how Nifty or Sensex levels are derived.
Tabular Explanation – Index Derivation
Step | Component | Explanation |
1 | Select Stocks | Based on liquidity, market cap, sector representation |
2 | Calculate Market Cap | Share price × Total shares |
3 | Apply Free Float | Remove promoter holdings |
4 | Sum Free Float Market Cap | Add for all index companies |
5 | Divide by Base Cap | Compare with base year |
6 | Multiply by Base Value | Get final index number |
Why Is the Free Float Method Used?
Earlier, a full market capitalization method was used. Now, free-float method is preferred because:
- It reflects actual tradable value
- Prevents promoter-heavy companies from dominating index
- More realistic representation of market movement
India adopted the free-float method in the early 2000s.
Role of Nifty and Sensex in Indian Economy
Nifty 50
- Managed by NSE Indices Ltd
- Represents around 60% of total NSE market capitalization
- Base year: 1995
- Base value: 1000
Sensex
- Managed by BSE
- Base year: 1978-79
- Base value: 100
Both are considered barometers of Indian stock market performance.
When foreign institutional investors (FIIs) invest heavily, these indices rise significantly.
Sectoral Indices - Why They Matter?
Sectoral indices help in:
- Identifying strong industries
- Sector rotation strategies
- Diversification decisions
- Index trading and derivatives
Example:
If the government announces infrastructure push, Nifty Infra and Nifty Metal may outperform.
Traders use sectoral strength to select stocks.
How Traders Use Indices?
- Directional trading (Index Futures)
- Nifty options (Bank Nifty options)
- Options Trading (Nifty options, bank nifty options)
- ETF Investment (Nifty ETF, Sensex ETF)
- Passive Investment (Index funds)
- Hedging Portfolio Risk
Low cost and transparency has also seen index-based investing gain popularity.
Difference Between Nifty and Sensex
Feature | Nifty 50 | Sensex |
Exchange | NSE | BSE |
Stocks | 50 | 30 |
Base Year | 1995 | 1978-79 |
Base Value | 1000 | 100 |
Method | Free Float Market Cap | Free Float Market Cap |
Both represent large-cap Indian companies but differ in composition.
Advantages of Understanding Index
- Helps track economic growth
- Guides investment decisions
- Provides benchmark for mutual funds
- Enables passive investing
- Supports macroeconomic analysis
Conclusion
It is important that every Indian investor be made aware of what is index in stock market, how many index in indian stock market. The choice of which index to use, be it a beginner who is learning about Nifty and Sensex or a trader studying sectoral indexes such as Nifty Bank or Nifty IT, at the bottom of market analysis lies in the index.
India has a large index ecosystem, broad market, sectoral, thematic, and strategy-based. The free-float market capitalization method has been used in deriving the value of an index and provides realistic and tradable market representation.
We are of the opinion that index fundamentals are the initial point in a professional trading and investing life at Trendy Traders Academy. Once having known the way the indexes operate, it is much more organized and simple to read the movements within the market.
FAQ'S
What is index in stock market?
An index is a statistical value which is used to track the performance of a specified set of chosen stocks of a market sector or industry.
How many index in indian stock market?
India has over 200 indices in NSE and BSE such as broad market, sectoral, thematic and strategy indices.
How is Indian stock market index value calculated?
The index value is derived in the free-float market capitalization technique in relation to the present market cap and the base year market cap.
What is the difference between Nifty and Sensex?
Nifty contains 50 stocks and is listed in NSE and Sensex contains 30 stocks and is listed in BSE.
What are the reasons for sectoral indices?
Sectoral indices assist investors in the analysis of performance of particular industries such as banking, IT, pharma, and auto industry.
