Analysis of Stock Indices and Their Impact on Market
The stock index consists of stocks that have similar characteristics, similar industries or companies.
There are various stock indices in India but we are aware of only two NIFTY and SENSEX. How these indices affect the market.
The movement in prices of stocks affect the index, if the movement in prices is positive the index will show an upward trend and vice versa.
The most time taking part of investment decision is stock selection. The stock selection depends on various factors; fundamental analysis, technical analysis, company size, market capitalization. the selection of stock also depends on the stock indices.
Some of the significant indices are
Benchmark indices- NIFTY 50, SENSEX
Sectoral indices- nifty bank, BSE FMCG
Market capitalization-based indices- NIFTY midcap 100, BSE small-cap
Broad market indices- BSE 100, NIFTY 200
Stock indices help investors in stock picking as there are many stocks listed in the exchange, with the help of indices you can analyse which industry is performing better and which is low. Those stocks are chosen for the day which is listed under top gainers whose indices are moving upward.
Through stock indices you can peer comparison of different industries, which industry is positive and which is negative, sectoral indices help in the selection of stocks.
The indices movement also depend on the movement of global indices. The Indian indices movement mainly get affected by the US index and Singapore index. The opening of Indian indices mainly depends on the closing of Dow jones and SGX nifty. If there is positive movement in the above indices, the Indian indices will show positive movement.
The positive opening of indices shows an upward trend in the market.
If there is any negative news in the market, that industry will perform low and those sector indices will show a downward movement.
The stock market is volatile you cannot make an accurate analysis of risk and return. With help of different indices this can be made easy, various researchers say that BSE mid-cap has a less standard deviation that is it is less risky compared to other market capitalization indices.
The mid-cap index is trusted by most investors as compared to small-cap and large-cap. The return of BSE 100 mostly gets affected due to BSE Sensex. BSE 100 returns can be forecasted based on news and trends.
BSE small cap is observed to move in the opposite direction of market trend, it cannot be forecasted on basis of trends and news.
The NSE also has various indices, investors generally trust the nifty large-cap as it is less risky and the returns forecasted are to be trusted on. the nifty 50 stocks are where most investors invest their money compared to other market capitalisation indices.