Introduction
In finance, a stock index, or stock market index, is an index that measures a stock market, or a subset of the stock market, that helps investors compare current stock price levels with past prices to calculate market performance.
India's stock markets have two benchmark indices - BSE Sensex and NSE Nifty. Best college for MBA in Bangalore
Purpose of Stock Market Indices
There are thousands of companies listed on stock markets, making it almost impossible to monitor each company. This is why stock market indices are created. Market indices bring together a select group of company stocks and regularly measure them to show the performance of the overall market or a certain segment of the market.
In short, an index helps investors understand the health of the stock market, enables them to study market sentiment and makes it easy to compare the performance of an individual stock. MBA in Bangalore
Stock Market Indices in India
In India, we have two main stock indices. The Sensex and Nifty-50 are two popular benchmark indices that largely reflect the performance of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). To understand how each sector of the stock market is doing, there are sectoral indices such as Nifty Bank. Nifty Auto etc.
Factors Affecting Share Prices in India
Stock markets are highly volatile and the volatility happens due to several factors. The principal factors that affect changes in stock prices include:
- Market sentiment
- Industry performance
- Government policies
- Company news
- Market Capitalization
Market forces such as supply and demand determine the share prices. Optimistic investors buy a stock and pessimistic investors sell the stock.
Stock prices are also driven by something known as “Herd Instinct”. In a bull run, if investors prefer buying a stock then the demand increases and so does the price. Alternatively, when people prefer selling the stock for whatever reasons, it increases the supply of the stock in the market, and thereby prices of the stock decline resulting in a bear market. PGDM in Bangalore
Generally, stock performance is also determined by the performance of the industry that the company is in. Stock prices of the companies in the same industry often move in tandem with each other.
However, occasionally a company will also benefit from bad news for its competitor if both the companies are competing for the same market.
Economic and government conditions also directly or indirectly affect stock prices. Changes in economic policies, interest rates, inflation, deflation, fluctuations in global economic conditions such as crude oil prices, war, and natural calamities, in turn, affect stock prices.
Economic and political shocks such as an act of terrorism can also make stock prices fall.
Company fundamentals often decide why certain stocks are more preferred than others are. Company-specific factors, which affect share prices, include:
- Earnings and profits
- Share splits, dividends, and share buy-backs
- Change in management, mergers, etc.,
- Employee layoffs
- Introducing a new product or product recall
Often a company’s value is determined by its stock prices. The right way to determine the true worth of a company is by understanding its market capitalization. Market capitalization can be calculated by multiplying all outstanding shares by the price of a single share.
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