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Indian Indices and the Stock market: Current Happenings

Updated: Mar 18, 2021

So, firstly let’s learn what indices are in the language of an investor.

"Indices are broadly referred to as an indicator or measure of something. In the financial markets, indices are used as a statistical measure for tracking economic data, a methodology for grouping a specific market segment, or an investment management strategy for passive investments".

Putting the same into ease;

Indices are plural to index, where index stands for a list. For an investor, an index means a list of companies in fashion, whether sectoral distribution or enlistment on the basis of market capitalization or price of various stocks.

In India, we have two gigantic indices well known as S&P Bombay Stock Exchange Sensex and CNX National Stock Exchange Nifty. Sensex and Nifty are the two indices where top 30 and top 50 companies are ‘listed and traded in' respectively.

Now, a normal question arises, we have companies, we have stocks, why do we need indices?

Fundamentally indices are a necessity, it's not something trendy. Indices are a gauge over various companies and their minute-to-minute performance. They reduce the chaos, put things and stocks systematically, and organize them into stuff the general public can understand. If it were not for these, investors and the public at large would have been easy prey to the exploitation of the stock market. With the help of indices, it becomes for the vicinity to invest safely after scrutinizing all the possibilities and tactics.

Not only monitoring, but indices like Sensex and Nifty also represent the top 30 and top 50 companies, respectively right? So, investment in these indices would mean an aggregate investment in top 30 or top 50 companies as the case may be. For example, if you buy the Nifty 50 index you would be investing in the top 50 companies indirectly. This would also spearhead investment in the GDP of the country directly. "The risk of underperformance is low in index funds because they contain stocks from several sectors and industries, thereby essentially diversifying your investment portfolio. When you invest in a specific stock, your corpus might be eroded if those stocks don’t perform well. With stock market indices, however, your exposure to risk is largely reduced". Investors look to broad indices as benchmarks to help them gauge not only how well the markets are performing, but also how well they, as investors, are performing.

Quick Comparison:

Type Risk Effort Cost

Index Fund Low Low Low

Direct Investing High High Low

The trend as seen for the last 6 months; Nifty is on a regular growth with minor falls starting from rupees 11278 on Sept 9, 2020, to today at around rupees 14956. But the last month has been a serious concern which puts forth our point that indices may not be steady for short-term investments but offer some real returns for middle and long-term investments. Nifty has shown a better trend for the last 5 days though. And so is the case with Sensex.

Moving hence, the article concludes its agenda with the statement that indices can be a support system for amateur investors and a weapon for strategic pro investors.

Investing in Indian indices generalizes the idea of aggregate investment in top companies listed on their respective stock exchanges (BSE for Sensex and NSE for Nifty).

So, on the baseline, investing in indices not only encourages the stock market but also pretty much guarantees itself a return of around 12% as per the latest stats, and this investment is directly related to GDP growth since it is the upliftment of the stock market which is also one of the many reasons for the growth of the Indian economy.

Invest Safe, Risk More!




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