Explain the following: Stock market indices are the barometers of stock markets.

The stock exchanges play a cardinal role in promoting the level of capital formation through effective mobilisation of savings and ensuring investment safety. Government's policy is so moulded that creation of wealth through products and services is facilitated and surpluses and profits are channelised into productive uses through capital market operations. Higher new investments from public and institutions lead to higher liquidity and ultimately higher stock market indices. That is why, it is said that changes in the stock market index is indicative of the concurrent changes in the economy and hence, termed as 'barometer' of an economy. Stock index is taken to be the benchmark both for investors as well as corporate entities. On one hand where movement in stock indices reflect investment avenues at the disposal of investors, on the other hand, indices also reflect the scope of business opportunities for the corporate players for their prospective ventures and business proposals. All and all, stock exchanges are upheld as the barometer of the economy.