Stock Market Index

What is Stock Market Index?

           Stock market index is a statistical measure of stock market. Index expresses overall change of stock market in points by considering some selected stocks.

           Stock Market Index is constructed by group of selected securities of different leading industries. The selection of companies which are to be included in the index construction is based on certain parameters.Generally most of indices are constructed on the basis of Market Capitalization.

           In Stock Market Index construction first leading industries are selected, then leading companies which are having highest market capitalization in that specific industry are selected. Then weight age  of  the companies are calculated and then equated to some base points and then each point monetary value will be calculated.

Now the total net change will be calculated for every 14 seconds and stock market index will be updated with  corresponding points.

Example:

 Company     No. of Shares    Price of share    Market Capitalization

A                        10,000                  100                     10,00,000    

B                         20,000                  500                 1,00,00,000

C                           5,000               1,000                    50,00,000

D                         30,000                  200                    60,00,000
E                          50,000                 300                  1,50,00,000
                                                                                3,70,00,000

Here   I have given an example index which is constructed with five companies Market Capitalization.
Let us take 
             100 points = 3,70,00,000
                               
                 1 point  = 3,70,00,000 / 100
                             = 3,70,000
It means for every Rs. 3,70,000 net change in Market Capitalization, Corresponding change takes place in index points.
Let us take that 
The Market Capitalization is changed as the following:

 Company     No. of Shares    Price of share    Market Capitalization

A                        10,000                  150                     15,00,000    

B                         20,000                  600                 1,20,00,000

C                           5,000                  800                    40,00,000

D                         30,000                  250                    75,00,000
E                          50,000                 320                  1,60,00,000
                                                                                4,10,00,000

The Net change in Market capitalization =    4,10,00,000 - 3,70,00,000
                                                                     =   40,00,000

Change in index points = 40,00,000 / 3,70,000

                                   =  10.81

So, the index increases   10.81 points

Now the Stock Market index is at 100+10.81 points. It means at 110.81 points.

Like above, Stock Market Index will be updated for every  14 seconds