A stock market index is a single number that tracks the combined performance of a selected group of shares. Instead of following hundreds of companies one by one, an index lets you see in one figure whether that part of the market is rising or falling. In India, the best-known indices are the Nifty 50 and the Sensex.
What an index is
An index is built by choosing a basket of companies according to clear rules, such as size, trading activity and sector, and combining their share prices into one value. That value starts from a base number on a base date. When the shares in the basket rise in value overall, the index rises; when they fall, it falls. An index is a measuring tool: you cannot buy the index itself, but you can buy funds that copy it.
How it works in India
The Nifty 50, run by NSE Indices, tracks 50 large companies listed on the NSE. The Sensex, run by Asia Index (a BSE joint venture), tracks 30 large companies on the BSE. Both are free-float market-cap weighted: bigger companies, measured by the value of shares available for public trading, have a bigger influence on the index. A 2% move in a very large company moves the index far more than a 2% move in a smaller one.
Index providers review their baskets regularly, usually twice a year, adding companies that have grown and removing those that no longer qualify. There are also broad indices such as the Nifty 500, size-based indices such as the Nifty Midcap 150 and Smallcap 250, and sector indices such as Nifty Bank and Nifty IT.
A simple example
Suppose the Nifty 50 closes at 25,000 one day and 25,250 the next. It has risen by 250 points, or 1%. That does not mean every one of the 50 shares rose; some may have fallen. It means that, weighted by size, the basket as a whole gained 1%.
Why it matters for investors
Indices act as a thermometer for the market, a benchmark to judge whether your own investments or a mutual fund did better or worse than the market, and the basis for index funds and ETFs, which let you invest in all the companies of an index at low cost.
Index funds and ETFs
An index fund or exchange-traded fund (ETF) simply holds the same companies as an index, in the same proportions. Because it follows rules instead of a fund manager's choices, its costs are usually low. Many investors use Nifty 50 or Sensex funds as the core of a long-term portfolio, adding individual stocks around it if they wish.
Price-weighted and equal-weighted indices
Not every index uses market-cap weighting. A price-weighted index, like the well-known Dow Jones in the US, gives more influence to shares with higher prices. An equal-weighted index gives every company the same influence, so smaller members matter as much as the largest. Each method tells a slightly different story about the market, which is why the same day can look a little different depending on the index you follow.
Example on PositoAI: how much the largest companies weigh
On 20 Oct 2026, the 50 Nifty companies on PositoAI were worth about ₹184 lakh crore together. By market value, Reliance Industries made up about 8.8%, Bharti Airtel 6.3%, HDFC Bank 6.0%, ICICI Bank 5.4%, State Bank of India 4.9% and TCS 4.8%; the ten largest made up about 47%, and 28 companies were in both the Nifty 50 and the Sensex.
The US shows the same pattern more strongly: seven companies made up about 35% of the S&P 500 (see the Magnificent 7). (Shares by full market value; the indices use free-float weights, so official weights differ somewhat.)
Common misconceptions
"The index represents the whole economy." It represents only the companies in it, mostly large listed ones.
"If the index rises, my shares rise." Individual shares can move very differently from the index.
"Index points show value." A higher number only reflects growth since the base date; comparing points between different indices means little.
Frequently asked questions
How many companies are in the Nifty 50 and Sensex?
50 and 30 respectively.
Can I invest in an index?
Not directly, but index funds and ETFs copy it.
How often do indices change their companies?
Usually at scheduled reviews, about twice a year.
What does "weighted" mean?
Larger companies have a bigger effect on the index value.
How to use this on PositoAI
See all Nifty 50 and Sensex companies in one place on Senty, ranked by their Positivity Score, and US index members on the S&P 500 page. Open any company to see its details and red flags, and compare companies of similar size in Rankings. PosiStep 6 of PosiCourse, PositoAI's free stock market course, explains how the major indices work.
Summary
A stock market index tracks a basket of shares as one number. India's Nifty 50 (50 companies) and Sensex (30) are free-float market-cap weighted, so larger companies matter more. Indices work as market thermometers and benchmarks, and index funds and ETFs let you invest in them at low cost. An index is not the whole economy, and your own shares can move differently.