An index is an indicator
of how the stock market is doing on the whole. An index comprises a basket of stocks.
The collective value of these stocks on a given date is taken and given a score
of 100. From that day onwards, the value of these stocks is tracked and its
score relative to 100 is computed.
The stocks selected are
based upon a number of parameters that the creators of the index decide.
Equally, the valuation is also done using complex mathematical principles.
Periodically, the list of shares used for computing the index also undergoes a
change. These changes are decided by the index creators based on the parameters
they have set for the stocks for inclusion.
An index shows whether
the stock market, on the whole, is appreciating in value or declining in value.
The movement of the
index itself is no indicator for individual shares. You may find that a particular
share may be increasing in its price even when the index is down and vice
versa. The index is only an indicator of the general trend.
SENSEX, the index for stocks listed on the Bombay Stock Exchange
Nifty, the index for stocks listed on the National Stock Exchange.
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