Even people who don't follow stock markets closely may have a pretty good idea of the Sensex value. But what exactly is the Sensex? And what can indices like the Sensex and Nifty tell you about stock market movements?

What is a stock-market index?

A stock-market index is simply a convenient summary of market prices. There are thousands of stocks whose prices fluctuate up and down every day.

An index helps make sense of this chaos and gives you a single number which tells you how well the market is performing compared with earlier periods. The basic idea is to select a small number of stocks which are considered representative and important and calculate the index based on the prices of those stocks.