What is Index in Stock Market: A Complete Guide for Beginners
Ever heard someone say, “The market is up today,” and wondered what that really means? Usually, they’re referring to a stock market index — a powerful tool that measures how a group of stocks is performing. Understanding what a stock market index is can help you grasp how the market behaves and guide your investment decisions.
In this guide, we’ll simplify what is index in stock market, explain how many index in Indian stock market, and help you understand the Indian stock market index system in a friendly, easy-to-read way.
Learn what is index in stock market, how many index in Indian stock market, types of Indian stock market index, and best trading app in India for investors.
Introduction to Stock Market Index
Imagine the stock market as a giant fruit basket filled with hundreds of different fruits — apples, bananas, mangoes, and oranges. Now, if you want to know whether the basket as a whole is getting fresher or going stale, you’d pick a few representative fruits and monitor their condition.
That’s exactly what an index in the stock market does — it represents the overall market’s health by tracking selected stocks.
What is Index in Stock Market?
A stock market index is a statistical measure that shows the performance of a group of stocks. These stocks are chosen based on specific criteria like industry, size, or market capitalization.
In simple terms, a stock market index is like a report card for the market. When the index goes up, it means the selected stocks are performing well, and when it goes down, it signals a decline in performance.
Why Do We Need a Stock Market Index?
Without an index, tracking the performance of hundreds or thousands of stocks would be chaotic. Indexes simplify this by giving investors a snapshot of market trends.
Here’s why they matter:
- Benchmarking: Investors compare their portfolio returns against an index.
- Market sentiment: Index movement reflects overall investor confidence.
- Decision-making: Helps investors decide when to buy or sell stocks.
How Does a Stock Market Index Work?
Each index tracks a fixed set of stocks. These are weighted based on their market capitalization (the total value of all their shares).
For example, in the Nifty 50, larger companies like Reliance Industries or HDFC Bank have a bigger impact on index movements than smaller ones.
So, when big companies perform well, the index rises — even if smaller companies don’t.
How Many Index in Indian Stock Market?
India’s stock market has dozens of indices, each serving a specific purpose. The two main exchanges — BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) — both have several indices.
As of now, there are over 100+ indices in the Indian stock market, covering sectors, market caps, and investment themes.
Some popular ones include:
- BSE Sensex
- NSE Nifty 50
- Nifty Bank
- Nifty IT
- Nifty Midcap 150
- Nifty Smallcap 100
Major Indian Stock Market Indexes
Let’s break down the two major types of indices you’ll often hear about:
- Benchmark indices: Represent the overall market (e.g., Nifty 50, Sensex).
- Sectoral indices: Focus on specific industries like IT, banking, or pharma.
- Thematic indices: Based on investment themes like ESG, consumption, etc.
- Broader market indices: Include mid-cap and small-cap stocks.
BSE Sensex – The Oldest Indian Stock Index
The BSE Sensex, launched in 1986, is the oldest stock market index in India. It tracks 30 of the largest and most financially sound companies listed on the Bombay Stock Exchange.
These companies represent key sectors of the Indian economy — from banking to technology. If the Sensex rises, it indicates that India’s top companies are performing well.
NSE Nifty 50 – India’s Benchmark Index
The NSE Nifty 50 was introduced in 1996 and includes 50 top-performing companies listed on the National Stock Exchange.
It covers 13 sectors of the economy and is widely used as a benchmark for mutual funds, ETFs, and portfolio comparison.
Both Nifty and Sensex move in similar directions, though their compositions differ slightly.
Sectoral Indices in India
Sectoral indices focus on specific industries, allowing investors to track particular sectors. Examples include:
- Nifty Bank: Top banking stocks.
- Nifty IT: Leading technology companies like Infosys and TCS.
- Nifty FMCG: Consumer goods giants like HUL and ITC.
- Nifty Pharma: Major pharmaceutical firms.
These indices are useful if you’re interested in sector-based investing.
Thematic and Broader Market Indices
Thematic indices track companies based on a shared theme or trend, like clean energy or digital innovation.
Examples:
- Nifty ESG Index
- Nifty India Consumption
Broader market indices like Nifty 100, Nifty 500, or BSE 500 represent larger sets of companies, giving a complete view of the market.
How Are Stock Market Indices Calculated?
Most indices use a free-float market capitalization-weighted method, meaning only publicly traded shares are considered.
Here’s how it works:
- Multiply the stock’s current price by the number of free-floating shares.
- Sum up all these values for all companies in the index.
- Divide by a base index value to get the index level.
This ensures that large, influential companies have a greater effect on the index’s movement.
Why Indices Are Important for Investors
Indices act as:
- Barometers of the economy: They reflect economic health.
- Guides for investors: They help identify trends and make informed decisions.
- Benchmarks for mutual funds: Fund performance is compared with an index.
- Instruments for passive investing: Through index funds and ETFs.
In essence, they’re the compass that guides investors through the vast financial ocean.
Index Funds and ETFs – Investing Made Simple
If you find stock-picking complicated, index funds or ETFs (Exchange-Traded Funds) are great alternatives.
They replicate a stock market index, like Nifty 50 or Sensex, allowing you to own a piece of the market instead of individual stocks.
Advantages:
- Low cost
- Diversification
- Simple to manage
Over time, these funds tend to perform better than many actively managed portfolios.
How to Track Indian Stock Market Indices
You can track real-time index performance easily through:
- Financial websites like NSE India, BSE India, or Moneycontrol.
- TV channels like CNBC or ET Now.
- Mobile apps like Firstock, Zerodha, or Groww.
Most trading apps in India allow you to add indices to your watchlist and receive alerts on movements.
Trading App in India to Track and Trade Indices
If you want to track or trade index-based instruments like index funds or derivatives, you’ll need a reliable trading app in India.
Some top-rated apps include:
- Firstock – Offers low brokerage, fast execution, and user-friendly interface.
- Zerodha Kite – Known for advanced charting tools.
- Groww – Ideal for beginners investing in mutual funds and stocks.
- Upstox – Great for F&O and index trading.
These platforms make it easy to trade, invest, and stay updated with real-time market movements.
Common Myths About Stock Market Indices
Let’s clear a few misconceptions:
- Myth: “When Sensex rises, all stocks go up.”
Truth: Only selected large-cap stocks impact Sensex movement. - Myth: “Indices are only for experts.”
Truth: Even beginners can use them to understand market trends. - Myth: “Index funds give low returns.”
Truth: Over the long run, they often outperform actively managed funds due to lower costs.
Conclusion
To sum it up, an index in the stock market is more than just a number flashing on your screen — it’s a mirror reflecting the economy’s heartbeat.
Whether you’re tracking the BSE Sensex, NSE Nifty 50, or exploring sectoral and thematic indices, understanding how indices work empowers you to make smarter investment choices.
And with modern trading apps in India, it’s easier than ever to stay informed, invest wisely, and grow your wealth.
FAQs
1. What is index in stock market?
A stock market index measures the performance of a selected group of stocks, helping investors track overall market trends.
2. How many index in Indian stock market?
There are over 100 indices in the Indian stock market, including major ones like Nifty 50, Sensex, and several sectoral and thematic indices.
3. Which is the main index of the Indian stock market?
The NSE Nifty 50 and BSE Sensex are India’s primary benchmark indices.
4. Can I invest directly in a stock market index?
You can’t invest directly in an index, but you can invest through index funds or ETFs that replicate the index’s performance.
5. Which trading app in India is best for tracking indices?
Firstock, Zerodha, Groww, and Upstox are among the best trading apps in India for tracking and investing in stock market indices.
