The creation of stock market indices depends on various factors, including the industry, market capitalization, segment, and many more. Stocks from multiple companies that satisfy the earlier standards are chosen once the indices have been created. Following that, the Index is calculated based on the stock selection. Each stock, however, will have it\u2019s price, and the price range in one stock will not be the same as that. As a result, adding the prices of all the stocks does not yield the index value.<\/p>\n

As a result, giving stocks weights comes into play. Each stock in the index is assigned a specific weight depending on its current market price or capitalization. The weight specifies how stock price changes affect the index value. The two most famous stock market indices are as follows:
\n1. Market Cap Weightage: It is calculated by multiplying the stock price by the total number of outstanding shares the company has issued.
\n2. Price Weightage: In this method, the index value is calculated using market capitalization rather than the company’s stock price.<\/p>\n