Stock market index is a thermometer that measures the health of a group of stocks. As the stocks in a group change value, the index also changes. When business environment is good, the index tends to rise. When business environment is bad, it falls.

Let’s say when I ask you how is stock market today? There are approximately 5,000 listed companies in the Bombay Stock Exchange and about 2,000 listed companies in the National Stock Exchange. It would be hard to check each and every company, figure out if they are up or down for the day and then give a detailed answer.

To help people identify whether the stock market is doing positive (performing good) or negative (performing bad), stock index was introduced. Stock index acts as a benchmark for all the stocks that are listed on the stock exchange.

There are basically 2 types of Stock indices