Things you need to know about Stock index calculation
Stock market is nothing but the aggregation of the sellers and the buyers of stocks, but many people do not know that not all the companies are listed on the stock exchange. These stocks are nothing but shares of the company/ organizations which they trade in the market. A stock market index is nothing but a measurement of the value of the stock market. Index calculation is done in order to draw the conclusion of return on the investor’s investment. Index providers use this term generally for the financial managers and the general investor’s better understanding.
Index maintenance is very important as it guides n number of people about the progress and loss of the stock market. Following are the two main stock market indexes
- Sensex – Sensex is also known as sensitivity index and is used by the Bombay stock exchange, the top 30 companies of the BSE are taken into consideration while calculating for the sensex. The positive the number the better the condition of the stock exchange market.
- Nifty – Nifty is also known as Nifty fifty as about 50 companies are taken into consideration while calculating for Nify. These 50 companies are representing 24 different sectors, It is a NSE (National stock exchange) indicator and it represents almost 47 percent value of he traded shares on the stock exchange. NSE is calculated using 1995 as the base year and the value of the base index as 1000.
Following is the criteria for calculating the stock market index
- Listing history – the listing history of the particular index be it Nifty or sensex.
- Record – the company listed should be holding a good track record.
- Market capitalization – The Company should be falling into the 100 BSE market capitalizations and should also be holding 0.5 percent of it.
- Industrial representation - The Company should be a leader in the industry it is working.
So these are the basic criteria’s one must fulfill to get listed on the stock exchange index’s, there are many other indexes as well a company can go for.
Source : http://equityindex.webnode.com/things-you-need-to-know-about-stock-index-calculation/