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Stock Market Indexes in World - Explained

Published on Tuesday, April 21, 2015
‘Sensex loses 556 points, slips below 28K’ screams Economic Times! But what does it mean? What is Sensex? Why has it lost 556 points? What does it mean that it has slipped below 28K?

Dear readers, today we attempt to unmystify the world share/ stock market indexes (indices) – which until now we’d come across while turning pages in the newspaper!

What are stock indexes?

Stock Market, as we all know, is a market (a real/virtual market) where stock or shares are bought and sold – companies raise money through stock markets. In stock markets the shares of those companies which are listed with the Stock Exchange are bought and sold.

Stock markets will have stocks of numerous companies – at various price levels – activity levels floating around.

Imagine your city’s biggest and most popular vegetable market – where vendors from all over the city come to sell their produce – so many vendors – so many vegetables – so many buyers and so many different prices!

Stock Exchange is essentially an organization – which enables the trade in shares by providing a ‘trading area’, staff, infrastructure and making connections between buyers and sellers and agents possible. Every stock exchange has its rules and regulations, which any company which wishes to get listed with it have to comply with.

Now – when you come back from your veggie shopping trip – and someone at home asks you how were the prices at the market – were they cheap or not? – How would you gauge that? Will you, when at market note down the prices of every vegetable – compare it with prices in other markets – what will you do?!

You will look at the prices of potatoes and onions – because they are the most important veggies out their – the basic, regularly required veggies – and decide if they’ve become costlier than before!

Same principle here – some companies are taken as indicators – these companies are obviously doing well and indicate the overall performance of their industries.

Thus, Stock Index is a numeric/ statistical measurement – an index – a number – which shows the performance of an economy taking some key companies (a segment of stock market) as its indicator.

In other words – looking at it from another angle – there is an ‘index’ which includes some stocks of some companies – the prices of these companies are measured and put through a formula – to give us the stock market index – the overall picture!

Through these indexes, investors, company owners, economists, traders etc. – who are known as stakeholders – glean useful information depending on their needs. An investor will invest if the markets are doing well and keep his money on the company showing progress – where performance falls – the investors take their monies away from the markets and that is when the indexes fall!

So more the positive activity – index rises – and vice versa.

How are they calculated?

Indices can differ based on their method of calculation – which is based on certain specific theory of what elements will give a near perfect indicator of industry average etc.

Indices may be price-weighted (prices of the stock are considered for calculating the index), or, capitalization-weighted index which looks at market value of the stocks.

Mostly used method is market capitalization method, where

Market capitalization = market price of shares x number of shares outstanding (issued by the company)

Another method used is free float market capitalization method, where

Market capitalization = market price of shares x number of share which are available for trading in the open market

How Sensex is Calculated

Famous indices and trivia:

Some very popular stock  indices followed worldwide:
1.      Dow Jones Industrial Average, The Global Dow
2.      Dow Jones Asia Titans 50
3.      S & P – Global 1000/1200 – (S&P = Standard and Poor’s)
4.      S & P Asia 50
5.      BBC Global 30
6.      EURO STOXX 50
7.      FTSE indices
8.      NASDAQ indices

and, Indian stock indexes are:
1.      Nifty – of NSE
2.      Sensex of BSE
3.      MCX-SX of MCX Stock Exchange

Famous Stock Exchanges:

      (i) NYSE – New York Stock Echange – is the market leader.
(iii) Tokyo Stock Exchange
(iv) LSE – London Stock Exchange
(v) Euronext

and, Indian Stock Exchanges are:
(vi) BSE – Bombay Stock Exchange
(vii) NSE – National Stock Echange
(viii) MCX Stock Exchange

Some more indexes for g.k. purpose!

1.      Iran’s – Tepix
2.      Japan’s – Nikkei 225
3.      China’a – SSE, SZCE, CSI 300
4.      Hong Kong’s – Hang Seng Index
5.      Malaysia’s – Kuala Lumpur Composite Index
6.      Nepal’s – Nepal Stock Exchange – NEPSE
7.      Pakistan’s – KSE indices
8.      Russia’s – Moscow Inter-bank currency exchange –MISEX
9.      Sri Lanka’s – All share Price Index – ASPI
10.  UK – has all the FTSE indices! So easy to remember
11.  USA – has got plenty, am just going to list em – the names are popular enough! -
Dow Jones, NASDAQ, Russell’s, S & P’s, Goldman Sach’s, Amex indices, Wilshire’s and CPMKTE (capital markets equity index)!

(The numbers after the names of the indices represent the number of companies in the index.)

and some unique indices:
12.  Space Foundation Index (SFI)
13.  Palidas Water Index (PWI)
14.  Cleantech Index
15.  Solactive Indices

                 Interesting to know – BSE is India’s and Asia’s oldest stock exchange! It happened in 1878! Yep!!

Followed by Tokyo’s stock Exchange in 1878 being the second oldest in Asia.

As far the international scenario is concerned – Amsterdam Stock Exchange is the oldest, having been established in 1602 by Dutch East India Company!

Ø  Knowing the Indian ones properly!

In Indian scenario – SEBI, the Stock Exchange regulator – recognizes only three stock exchanges:

  • SENSEX = Sensitive index, which is the index given by BSE or Bombay Stock Exchange.
  • It was founded in 1875 by Premchand Roychand and is the oldest stock exchange in India – of the three!
  • It is Head Quartered at the famous Dalal Street in Mumbai.
  • CEO is Ashish Chauhan.
  • It uses free float market capitalization method = value of shares which are available for trading = the value taken into the index.
  • It consists of 30 major companies listed with the BSE.
    Some of them are – SBI, ICICI Bank, Axis Bank, HDFC, Wipro, Infosys, TCS, ONGC, Airtel, HAL, BHEL, BEL, Coal India, Tata Motor etc.
  • Sensex is India’s foremost stock market indicator.

  • Nifty = National Stock Enchange’s 50 major companies
  • Controlled by India Index Services and Products.
  • It was founded in 1992 and is head quartered in Mumbai.
  • NSE’s MD and CEO is Chitra Ramkrishna
  • It uses free float market capitalization weighted method = value of shares which are available for trading and calculation done using weights = the value taken into the index.
  • The 50 companies include the 30 of sensex and extra 20 companies.

  • MCX-SX-40
  • Founded in 2008 – it is the youngest exchange with its Head Quarter in Mumbai.
  • CEO is Saurabh Sarkar.
  • It specializes in using state of the art infrastructure and technology to provide trading services for a variety of instruments.

That is all for today!

Hope this was helpful!
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Ramandeep Singh, your guide to banking and insurance exams. With 14 years of experience and 5000+ selections, Ramandeep understands the path to success, having transitioned himself from Dena Bank and SBI. He's passionate about helping you achieve your banking and insurance dreams.

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