What is Stock Market Index?
A Stock market index is mainly an indicator which indicates the performance of the stocks whether most of them have gone up or most of them have gone down. In other words, we can say that Stock market index not only gives a consolidated view about stock market performance but also indicates the overall general economy of the country. If the stock market indices are going up, it indicates that the investors have positive sentiment in the growth story of the economy. For example, the Sensex is an indicator of all the major companies of BSE (Bombay Stock Exchange), where as NIFTY is an indicator of all major companies of NSE (National Stock Exchange).
There are different types of Stock market indices such as Global indices (for the entire world), regional indices (for an entire continent like S&P Latin America 40), national indices (for an entire country like Sensex and Nifty in India), sectoral indices (for a particular sector in a country like BANKEX which tracks top banking stock in India) etc. Generally, a Stock market index is calculated in two different ways: price weighted method and capitalization weighted method.