What Are the Key Indexes in the Indian Stock Market and Why They Matter

The Indian stock market is one of the largest and most dynamic markets in the world, attracting a diverse range of investors from both domestic and international arenas. The importance of understanding the key indexes cannot be overstated, as they serve as vital indicators of economic and market health. So how many indexes are there in the Indian share market? And why do they hold so much importance? They help investors’, traders’, and policymakers’ chances of gauging sectoral performance and draw an overall picture of the economy with respect to their various constituents. Therefore, these stock market indexes are crucial benchmarks which enable stakeholders to keep tabs on how well the entire or specific segments of a stock market are performing on an ongoing basis. Hence, it is important to understand the Indian index list for making informed choices.

How Many Indexes Are There in the Indian Stock Market?

In the Indian stock market, there are a number of indexes serving different purposes, but two of its most important ones are Nifty 50 and Sensex. However, in addition to these principal indexes, India has a plethora of sectoral and thematic indexes that measure specific industries or segments of the market.

To answer the question of how many indexes are in the Indian stock market, we need to look beyond just the headline indices. In particular, we have not only large-cap indices; middle-cap or smaller companies may be included as well as banks and specialised sectors like pharmaceuticals technology or infrastructure. Today, more than ninety-three sectoral and thematic indices are being traded on an Indian stock exchange.

Each of these indexes holds significance for different investors depending on their investment strategy and sector preference.

Importance of Nifty 50 and Sensex

The Nifty 50 and Sensex are the two flagship indexes in India, both reflecting the overall health of the Indian stock market and economy.

• Nifty 50: Comprising 50 of the largest and most liquid companies on the National Stock Exchange (NSE), the Nifty 50 represents a broad cross-section of the Indian economy. It tracks the performance of these companies and gives investors an idea of the market sentiment and macroeconomic environment. The Nifty 50 covers companies from various sectors, including finance, information technology, energy, and consumer goods.
• Sensex: The BSE Sensex, or simply Sensex, includes 30 large companies listed on the Bombay Stock Exchange (BSE). Like the Nifty, the Sensex is a key indicator of market performance and is closely watched by traders, investors, and policymakers. The companies listed in Sensex are market leaders, which makes the index a barometer of market sentiment.

The two indexes are significant because they depict the general sentiment of the stock market, thereby aiding traders and investors to make quick, informed decisions. By tracking these indexes, individuals can gauge the general direction of the stock market, and they are frequently used as benchmarks for gauging individual portfolio performance.

Sectoral and Thematic Indexes

Beyond the two major indexes, India also has a variety of sectoral and thematic indexes. These provide insights into how specific industries or themes are performing. Some of the most recognised sectoral indexes include:

• Nifty Bank: This index tracks the performance of leading banking stocks in India. As one of the pillars of the Indian economy, Nifty Bank is a significant gauge for assessing the health of the financial system.
• Nifty IT: This index concentrates on the information technology sector which has been a key growth driver for India. Due to its global reach by Indian IT firms, Nifty IT is often closely watched by overseas investors.
• Nifty Pharma: India is one of the largest producers of pharmaceuticals globally, and the Nifty Pharma index captures the performance of key companies in this sector.
• Nifty FMCG: This index covers the fast-moving consumer goods sector, which includes essential products like food, beverages, and household goods. As consumer demand is a critical driver of the economy, this index is a reflection of consumption patterns in India.

These sectoral indexes are vital because they provide investors with the ability to focus on specific parts of the economy. For example, an investor who believes in the long-term growth of the technology sector can track the Nifty IT index and make sector-specific investments.

How Indexes Are Calculated

The stock exchange indexes in India are usually computed by market-capitalisation-weighted or free-float market-capitalisation-weighted techniques. The purpose is that for example, bigger companies have an easier time influencing index movements. For instance, both Nifty 50 and Sensex use the free-float market-cap method which ensures that only those shares available for public trading are considered in the calculation as opposed to the whole company’s market capitalisation. This makes them more reflective of market sentiment.

• Market-Capitalisation-Weighted: In this method, the index is calculated based on the total market capitalisation of all the companies listed in it. Larger companies with higher market value have a greater influence on the index’s movement than smaller companies.
• Free-Float Market-Capitalisation-Weighted: This method only considers the market value of shares that are available for public trading (free float). It excludes shares held by insiders like promoters, ensuring that the index reflects the actual market sentiment driven by publicly traded shares.

To ensure continued relevance and liquidity, indexes undergo regular recalibration; new firms may be added while underperformers can be deleted during these rebalancing periods.