In recent months, one common concern has echoed among investors:
“Markets are at their peak—it can't go up any further!”
But here’s what many are missing: Most investors aren’t clear about what a stock index actually is, how it’s constructed, and what causes it to rise or fall. Without this understanding, reacting to index levels can lead to poor investment decisions.
Let’s break down the concept in a simple way.
What is a Stock Index?
A stock index is like a thermometer for the market. It tracks the collective performance of a selected group of companies to help investors understand the general direction of the market.
Think of it this way: If there are 100 companies on an exchange and you want to measure their overall performance, you create an index. This index starts at a base value—say 100—and then moves based on how the market value of these companies changes over time.
A Simple Example
Let’s take four companies—A, B, C, and D. Each has 1,000 shares outstanding.
Company | Price | Market Cap (₹) | Weight in Index |
|---|---|---|---|
A | 15 | 15,000 | 15% |
B | 20 | 20,000 | 20% |
C | 25 | 25,000 | 25% |
D | 40 | 40,000 | 40% |
Total | 1,00,000 | 100% |
Let’s say this index starts with a base value of 100. The next day, share prices change:
Company | New Price | Market Cap (₹) | % Change |
|---|---|---|---|
A | 16 | 16,000 | +7% |
B | 21 | 21,000 | +5% |
C | 26 | 26,000 | +4% |
D | 36 | 36,000 | -10% |
Total | 99,000 | -1% |
Even though three companies rose in value, the index fell 1% because Company D, which had the highest weight, dropped by 10%.
This proves an important point: An index reflects the combined performance of its constituents, but not every stock within it moves the same way.
India’s Two Major Stock Indices
- Sensex
Sensex is the benchmark index of the Bombay Stock Exchange (BSE). It consists of 30 large, financially sound companies from diverse sectors.
- It is India’s oldest stock index, introduced in 1978–79 with a base value of 100.
- It is calculated using the Free Float Market Capitalization method.
- Free float means only those shares that are available for public trading are considered (shares held by promoters and insiders are excluded).
For example, if a company has 1,00,000 shares but 30% are held by the management, only 70,000 shares are considered for index calculation.
Today, the Sensex trades at around 81,442—a testament to India’s long-term economic growth. The Sensex is often seen as a barometer of the Indian economy.
COMPANY | Close Price | |
1 | ADANI PORTS AND SPECIAL ECONOM | 1456.15 |
2 | ASIAN PAINTS LTD. | 2243.45 |
3 | AXIS BANK LTD. | 1158.65 |
4 | BAJAJ FINANCE LIMITED | 8932.45 |
5 | BAJAJ FINSERV LTD. | 1943.5 |
6 | BHARTI AIRTEL LTD. | 1878.5 |
7 | Eternal Limited | 256.55 |
8 | HCL TECHNOLOGIES LTD. | 1632.1 |
9 | HDFC BANK LTD. | 1950.9 |
10 | HINDUSTAN UNILEVER LTD. | 2377.1 |
11 | ICICI BANK LTD. | 1454.75 |
12 | INDUSIND BANK LTD. | 803.1 |
13 | INFOSYS LTD. | 1554.35 |
14 | ITC LTD. | 419.3 |
15 | KOTAK MAHINDRA BANK LTD. | 2039.65 |
16 | LARSEN & TOUBRO LTD. | 3641.75 |
17 | MAHINDRA & MAHINDRA LTD. | 3043.6 |
18 | MARUTI SUZUKI INDIA LTD. | 12123.4 |
19 | NESTLE INDIA LTD. | 2401.3 |
20 | NTPC LTD. | 328.65 |
21 | POWER GRID CORPORATION OF INDI | 294.25 |
22 | RELIANCE INDUSTRIES LTD. | 1442.65 |
23 | STATE BANK OF INDIA | 806.1 |
24 | SUN PHARMACEUTICAL INDUSTRIES | 1683.25 |
25 | TATA CONSULTANCY SERVICES LTD. | 3371.95 |
26 | TATA MOTORS LTD. | 710.1 |
27 | TATA STEEL LTD. | 158 |
28 | TECH MAHINDRA LTD. | 1562.1 |
29 | TITAN COMPANY LIMITED | 3503.65 |
30 | ULTRATECH CEMENT LTD. | 11159.1 |
- Nifty
Nifty is the benchmark index of the National Stock Exchange (NSE). It represents the performance of the top 50 large-cap companies across sectors.
- It was launched in 1995 with a base value of 1000.
- Like the Sensex, it is also calculated using the Free Float Market Capitalization method.
Nifty is widely tracked by domestic and global investors and is considered a reliable indicator of broader market trends.
Company Name | Market Price | |
1 | Adani Enterprises Ltd. | 2504.4 |
2 | Adani Ports and Special Economic Zone Ltd. | 1456.7 |
3 | Apollo Hospitals Enterprise Ltd. | 6876 |
4 | Asian Paints Ltd. | 2243.5 |
5 | Axis Bank Ltd. | 1159 |
6 | Bajaj Auto Ltd. | 8557.5 |
7 | Bajaj Finance Ltd. | 8934 |
8 | Bajaj Finserv Ltd. | 1944 |
9 | Bharat Electronics Ltd. | 393.5 |
10 | Bharti Airtel Ltd. | 1878.8 |
11 | Cipla Ltd. | 1489.8 |
12 | Coal India Ltd. | 394.9 |
13 | Dr. Reddy's Laboratories Ltd. | 1290.6 |
14 | Eicher Motors Ltd. | 5308.5 |
15 | Eternal Ltd. | 256.56 |
16 | Grasim Industries Ltd. | 2554.4 |
17 | HCL Technologies Ltd. | 1632.4 |
18 | HDFC Bank Ltd. | 1949.6 |
19 | HDFC Life Insurance Company Ltd. | 761.6 |
20 | Hero MotoCorp Ltd. | 4178.9 |
21 | Hindalco Industries Ltd. | 637.25 |
22 | Hindustan Unilever Ltd. | 2376.4 |
23 | ICICI Bank Ltd. | 1454.8 |
24 | ITC Ltd. | 419.1 |
25 | IndusInd Bank Ltd. | 803.2 |
26 | Infosys Ltd. | 1554.3 |
27 | JSW Steel Ltd. | 968.75 |
28 | Jio Financial Services Ltd. | 291.5 |
29 | Kotak Mahindra Bank Ltd. | 2039.9 |
30 | Larsen & Toubro Ltd. | 3642.6 |
31 | Mahindra & Mahindra Ltd. | 3041.6 |
32 | Maruti Suzuki India Ltd. | 12126 |
33 | NTPC Ltd. | 328.65 |
34 | Nestle India Ltd. | 2401.3 |
35 | Oil & Natural Gas Corporation Ltd. | 237.77 |
36 | Power Grid Corporation of India Ltd. | 294.25 |
37 | Reliance Industries Ltd. | 1442.4 |
38 | SBI Life Insurance Company Ltd. | 1774.8 |
39 | Shriram Finance Ltd. | 651.45 |
40 | State Bank of India | 806 |
41 | Sun Pharmaceutical Industries Ltd. | 1683.1 |
42 | Tata Consultancy Services Ltd. | 3371.1 |
43 | Tata Consumer Products Ltd. | 1111.9 |
44 | Tata Motors Ltd. | 710.15 |
45 | Tata Steel Ltd. | 157.97 |
46 | Tech Mahindra Ltd. | 1562.8 |
47 | Titan Company Ltd. | 3504 |
48 | Trent Ltd. | 5673 |
49 | UltraTech Cement Ltd. | 11159 |
50 | Wipro Ltd. | 247.94 |
Other Indices
Apart from Sensex and Nifty, there are many other indices such as:
- BSE 100
- BSE Midcap
- Nifty Next 50
- Nifty Smallcap
These indices focus on specific segments of the market, helping investors track the performance of mid-size or smaller companies separately from the large caps.
Why Do Stock Indices Go Up or Down?
Stock indices fluctuate based on the price movements of the companies that form part of the index. If the total market capitalization of all the companies in the index increases, the index will go up. If it decreases, the index will fall.
However, this doesn’t mean that every stock within the index has moved in the same direction. Some companies might see price gains even when the overall index falls, and vice versa. The index reflects the net effect of price movements—weighted by the size of each company—not the performance of each individual stock.
A commonly heard statement is:
“Sensex and Nifty are at their peak—they can’t go any higher.”
But this assumption is flawed.
An index can continue rising as long as the share prices of its major components increase, which happens when companies grow their earnings and market capitalization expands.
Conclusion: Can Indices Keep Rising? Absolutely.
Stock indices like Sensex and Nifty are not bound by upper limits. As long as the Indian economy continues to grow and businesses keep generating higher profits, share prices will naturally rise—and so will the indices.
To put things in perspective:
The Sensex, which began at 100 in 1979, now trades around 81,442 in 2025.
An investment of ₹1 lakh in the Sensex in 1979 would be worth over ₹8.14 crore today.
So instead of worrying whether the index is “too high,” investors should ask:
“Are Indian companies growing, and is the economy progressing?”
If the answer is yes—and it consistently has been over the decades—then the long-term direction of the market is up. The focus should be on growth, not levels.