What do indices mean in the Stock Market?
Stock market indices are indicators showcasing the changes in the stock market. Indices are created with a catalog of stocks already listed in the stock market based on certain criteria. The criterion includes the company size, the sector they belong to, and the market capitalization. The classification or sub-grouping is done to give investors more clarity and focus on selected stocks. The overall value of the index depends on the performance of the underlying assets.
Types of Indices in the Stock Market
There are majorly three types of indices in the stock market:
- Benchmark Indices – The key indices in the Indian Stock market, includes the NIFTY 50, the collection of top-performing 50 stocks,and BSE Sensex indices, the collection of the top 30 stocks.
- Sectoral Indices – Like NSE Pharma, BSE Metal, and more, that consist of top-performing stocks from specific sectors like Pharma, Healthcare, or Metal & Mining
- Market-cap indices –Indices that select companies based on market capitalization. S&P BSE or NSE Small Cap are examples of indices that list companies with a smaller market cap
Sectoral Indices – Metal
The metal and mining industry in India is one of the major contributors to the country’s GDP and employment. Metals extracted from mines are processed and supplied to various other industries as raw materials like Automobiles, Aerospace & Defence, Consumer Durables, Electronics, Healthcare, and many more. Hence, the metal and mining industry is one of the bases for the country’s development. The metal indices in the stock market consist of the top-performing stocks in the industry that include companies associated with the extraction of Steel, Iron, Aluminium, Copper, Zinc, Precious metals, and others.
NIFTY METAL consists of 15 top-performing stocks from the metal and mining industry. Tata Steel, Adani, Jindal Steel, SAIL, Hindalco, and a few other major players in the metal and mining industry feature in this list. The NIFTY METAL index was launched in the year 2011. The market price of the stocks is calculated by comparing their market cap with the base market cap value in a real-time scenario.
BSE METAL lists 10 top-performing stocks that are listed on the Bombay Stock Exchange. S&P BSE Metals index was founded in the year 2004. Steel producers like Tata Steel, Jindal Steel, and JSW Steel consists of 50%, whereas major players in non-ferrous metals like Coal India, Hindustan Zinc, and others combined make up 30% of the BSE Metal index.
Both the indices are reviewed, and the values are corrected every six months.
How to invest in sectoral indices?
It is easy to invest in sectoral indices like NSE Metal or BSE Metal. You can either look for the stocks in the indices and include them in your portfolio to trade on them. The other way to invest is through Mutual Funds that puts money only in metal & mining stocks. Buying mutual funds is often considered a safer option as it hedges the risks of market volatility protecting your investments and ensuring good returns in the longterm.