This is perhaps the most confusion part of investing in Stock Market.
Lets take the example of the Bombay Stock Exchange. If we are to say whether the market has gone up or down how can we do this?
The ideal way is to analyse all the stocks listed in the BSE and then do a weighted average to find the right results.
Unfortunately this method was too time consuming so what was decided was the instead of doing this for all listed companies, each exchange decided to select certain companies from different sectors and try to represent the market as a whole. This lead to the formation of the Index.
BSE named its index as SENSEX which consists of 30 Stocks. The list keeps changing and can be found here http://www.bseindia.com/SensexView/SensexView.htm. Each of the stocks would have the weighted average that they hold on the Index.
The NSE took a different approach and named its index as NIFTY which consists of 50 Stocks. The list can be found here http://www.nseindia.com/live_market/dynaContent/live_watch/equities_stock_watch.htm?cat=N
By now it should be clear that just because an Index goes up that doesn't mean your stock would have gone up.The stocks in the index too would differ like few would have gone up and a few would have gone down but the overall index would have gone up. So index is just a bench mark and doesn't really say anything about your stock.
Lets take the example of the Bombay Stock Exchange. If we are to say whether the market has gone up or down how can we do this?
The ideal way is to analyse all the stocks listed in the BSE and then do a weighted average to find the right results.
Unfortunately this method was too time consuming so what was decided was the instead of doing this for all listed companies, each exchange decided to select certain companies from different sectors and try to represent the market as a whole. This lead to the formation of the Index.
BSE named its index as SENSEX which consists of 30 Stocks. The list keeps changing and can be found here http://www.bseindia.com/SensexView/SensexView.htm. Each of the stocks would have the weighted average that they hold on the Index.
The NSE took a different approach and named its index as NIFTY which consists of 50 Stocks. The list can be found here http://www.nseindia.com/live_market/dynaContent/live_watch/equities_stock_watch.htm?cat=N
By now it should be clear that just because an Index goes up that doesn't mean your stock would have gone up.The stocks in the index too would differ like few would have gone up and a few would have gone down but the overall index would have gone up. So index is just a bench mark and doesn't really say anything about your stock.
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