An index is a stock-market indicator created as a statistical measure of the performance
of an entire market or segment of a market based on a sample of securities from
the market. An index is thus a means to evaluate the overall performance of a market
or of a segment of the market. Index measures aggregate market movements.
Apart from being a general market indicator, indices are used as a benchmark to
evaluate individual portfolio performance. Professional money managers will always
try to outperform the market, i.e. they will always try to do better than the indices.
For example, if the value of a portfolio moves up by 10% while the index moved up
by only 5% then the portfolio is doing better than the market.
We have 2 renowned indices viz.
BSE Sensitive (BSE Sensex) and S&P Nifty 50 (Nifty)
BSE Sensex comprises of 30 large-cap companies. As the name
suggests, it is a premier index on Bombay Stock Exchange (BSE). Nifty
comprises of 50 large-cap companies on the National Stock Exchange (NSE).