Stocks follow Nifty, or Nifty follows Stocks?




Nifty is simply the weighted average of 50 companies, which means as the stocks move, Nifty will move. Thus Nifty follows stocks, not the other way round.

If Nifty price is purely determined by the price of constituent stocks, then why volume is significant for Nifty, and what is the significance of other price action indicators or momentum indicators on Nifty?




Its simple, suppose you carry forward a long in Infosys, next day they announce bad results, there is sure to be a gap of atleast some 10%, but Nifty as such is not going to fall 10%, thus protecting your capital. Secondly, stocks can be manipulated, but since Nifty is an average, it cannot be manipulated. Also, many follow it to know the market mood, since they cannot individually monitor 50 stocks, they just see Nifty to determine the mood/trend of the market as a whole(basically gives a broader persepective).




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