In one of the previous posts, we have discussed the history of stock exchanges and India’s 2 prominent stock exchanges NSE and BSE. In this, We will discuss their Index, importance, and how it is computed.

The index of BSE was named Sensex and the Index of NSE was named Nifty.

Sensex was created in 1986, it represents the top 30 stocks of the country according to market capitalization. Nifty on the other hand was created in 1996 and it represents the top 50 companies of our country according to market capitalization.

Why are Indexes Important?

1. Acts as a barometer: Many investors, domestic investors, and foreign investors, first study the Index for investing in the stock market. In that sense, it acts as a barometer for investors.

2. Helps in stock picking: The index helps you to pick a stock, in a way, there are more than 5000 listed companies without a benchmark, you may not be able to differentiate between the stocks.

3. Acts as a representative: Investing in equity is risky, and to invest in equity you require complete information. But as said in the above points there are 5000 listed companies, this will create a lot of confusion to keep track of all those companies.

4. Helps Passive investors: For anyone who has funds but doesn’t have specialized knowledge, Index can aid them to reduce the cost of research.

What are your thoughts about investing in Index … please share your thoughts in the comment section below!

Happy Investing!