How are Stock Market indices helpful?

The stock exchange is a setting where you sell and buy securities like Shares, Bonds, Derivatives, Commodities, Money Market Instruments, etc. Now, there are thousands of companies who list their offerings in the Share Market. This makes picking the right Stock for investment seem like a task. Besides, it becomes difficult to differentiate between Stocks without a benchmark. That is why Stock Market indices get created.

They categorise company Stocks and measure them to show the performance of the overall market. This helps you understand the market sentiment and invest accordingly. The two major market indices are- Sensex and Nifty-50. They indicate the performance of the National Stock Exchange and Bombay Stock Exchange. Terms like BSE Top Losers and gainers get used for the same. Tracking them regularly helps in:

Stock-picking

Selecting the right Stock makes all the difference in earning higher returns. As it is a crucial decision, you must consider its strength for growth. However, this is not an easy task as differentiating between similar Shares gets overwhelming. This process receives streamlined when they get indexed. They get classified based on critical characteristics like company size, sector, industry type, etc.

Sorting

Studying Stocks individually may seem impractical when you need to make quick investment decisions. Indices solve this by providing a glance over the performance of a specific sector. They represent the trend in the market. For instance, if you are interested in investing in the pharmaceutical industry, refer to the Stock Exchange index. Here you get to filter the BSE Top Losers today that represent the average performance of the entire industry.

Passive investment

As a beginner, investing with careful research does not come naturally. But if you still want to make an informed decision, creating a portfolio closely resembling an index is a great choice. Doing this helps you cut down on research and select Stocks easily. This helps match the portfolio returns with that od index. It enables you to predict future returns based on the current condition of the Sensex. Asset Management Companies use the same strategy.

Shows investor sentiment

Stock Market operates on demand and supply fundamental. This means. A Stock's performance is directly proportional to its attractiveness among various investors. Hence, understanding the typical response helps you take an informed investment decision. For this, refer to the Top Gainers and Losers in the Stock Exchanges. They provide a clear picture of the rise or fall in prices. 

Comparison

As aware, the Stock Market is flooded with numerous companies offering their Shares. Finding the most lucrative option is a task. But comparison and research help break down even the most complex market. Indices provide a benchmark in making the comparison process easier. Hence, if you want to spot the best-performing Stocks, you compare the price trends on the index. Additionally, use the index to compare a set of Stocks against another benchmark.