All Global Indices

The global stock market is a network of stock exchanges from different countries and regions. Exchanges from the United States, Asia Pacific, and Europe make up this marketplace. Here, investors can invest in the equities of multinational companies. Since the exchanges are interlinked, any developmental, geopolitical, or economic change can influence markets in other regions.

To track the performance of the overall global market or a particular segment of it, global market indices are used.

Global market indices or world market indices are indicators used by investors to measure how the stocks or specific segments of the global market are performing. These indices help analyze the performance of different economies, sectors, and regions as a whole.

Tracking a global market index can provide a clear viewpoint of market price movements and compare growth across countries efficiently.

Here are some of the widely-tracked global indices:

Below are the benchmark indices of the global stock market, categorized by region:

1. United States: The indices of the US financial markets are considered most influential due to their size and dominant global force. Here are some of the known US indices:
   • →S&P 500 (USA)
   • →Dow Jones Industrial Average (USA)
   • →Nasdaq Composite
2. Europe: The indices of the European market reflect the performance of mature economies with strong global trade exposure. They help monitor market trends across different sectors of the United Kingdom. Major European indices include:
   • →FTSE 100 (UK)
   • →DAX (Germany)
   • →CAC 40 (France)
3. Asia-Pacific: Here, indices indicate the performance of fast-growing and developed economies in the Asia-Pacific (APAC) region, representing global growth. Asia-Pacific indices include:
   • →Shanghai Composite Index (China)
   • →Nikkei 225 (Japan)
   • →Hang Seng Index (Hong Kong)
4. India: Indices in India closely track the performance of leading companies, serving as an important benchmark for analyzing India's economic growth. Indian indices include:
   • →NIFTY 50
   • →S&P BSE SENSEX

Emerging Market: Indices of emerging markets aim to monitor the performance of developing economies. Emerging market indices include: MSCI Emerging Markets Index and Bovespa (Brazil).

Specific methodologies are used to calculate global market indices. The exact approach used may vary from index to index; however, below are some of the commonly used calculation methodologies:

• Market Capitalization Weighted Method

  : This is a widely-used method in which companies are weighted as per their total market value. This indicates that the larger companies carry more influence on the index movements. Popular indices like the S&P 500 and the NIFTY 50 employ this approach, making them representative of the overall market size.

• Price-Weighted Method

  : This approach considers that high-priced equities carry more weight on the index price movements, regardless of their market cap. It may sometimes provide disproportionate influence to high-priced stocks. Few indices such as the Dow Jones Industrial Average and Nikkei 225 use this calculation method.

• Equal-Weighted Method

  : In this method, stocks have equal influence on the index price movements, regardless of their size or price. It weighs the average performance of all constituent stocks in the index. Indices like the S&P 500 Equal Weight Index use this approach.

• Free-Float Market Capitalization

  : This approach only considers publicly-traded shares (also known as free-floats), excluding those held by promoters or shareholders. The aim is to reflect actual market liquidity. Indices like BSE SENSEX and NIFTY 50.

Indian markets are closely linked to the global market system. Therefore, global indices are considered crucial indicators, influencing the Indian market sentiments. For example, Indian indices react strongly to any development or geopolitical change in the global market.

Global indices may influence the investment decisions of Foreign Institutional Investors (FIIs). Positive influence of indices may result in higher capital inflow into the Indian market and vice versa. Also, specific sectors in the Indian market, like IT, metals, and pharmaceuticals, are sensitive to the global market movements.

Both the global and Indian market indices have different purposes. However, when used together, they provide a complete snapshot of the market. Here are some basic differences between the two indices:

Global indices can assist investors in gauging global economic health to understand how it can impact their investments and the domestic market. Also, any movement in these indices can help retail investors identify emerging global opportunities and risks. Individuals can also gain insights into global market sentiments, economic changes, and interest rate cycles by tracking global indices.

Though global indices provide opportunities for diversification, they carry certain risks: