An Index (Stock Index)

Ok from the name, what do you think an Index would be? Are you thinking of the Index Finger? :)

Well an Index is a group of many stocks trading on a stock exchange, such that the movement of this index gives the essence of the movement of the market in general. An index would comprise of stocks from various sectors, IT, manufacturing, telecom, FMCG etc. One or more companies from each of these sectors would be selected to be a part of this Index, such that it would represent the sector.

Let us take an example of an Index. Nifty, BSE Sensex, BSE 100, CNX IT, Bank NIFTY, CNX MIDCAP 200, etc are examples of some indices. Let us examine one more closely, the BSE SENSEX.

BSE Sensex is an Index that is marked on the Bombay Stock exchange (BSE). The Sensex (as it is called) represents 30 stocks from varied sectors like manufacturing, IT, Infrastructure, Banking, Telecom etc which are all independently listed on the BSE. The 30 stocks are not necessarily the same. The stocks can be added and removed from the Sensex depending upon how adequately that specific stock defines and represents its sector. But for the Sensex, the number of stocks is kept constant at 30.

Let us see which these stocks are:

Sector	Stocks	No
Cement	ACC, Ambuja cements	2
Auto	Bajaj Auto ; Hero Honda ; Maruti Udyog ; Tata Motors	4
Telecom	Bharti ; Reliance Comm;	2
Pharma	Dr Reddy's ; Cipla ; Ranbaxy	3
Engineering	BHEL ; Larsen	2
Finance	HDFC	1
Bank	HDFC bank, ICICI ; SBI	3
Metals	Hindalco ; Tata Seel	2
FMCG	HLL ; ITC ;	2
IT	Infosys ; Satyam ; TCS ; Wipro	4
Power	NTPC ; ONGC ; Reliance Energy	3
Manufacturing	Reliance	1
Retail	Grasim	1
Total Scrips =		30

Thus the above combination of stocks makes the Sensex index.

Thus when the SENSEX is in the green, it means that on the whole, the 30 stocks (above) have moved up (in general) thus pulling the Sensex. This would also mean that there are more advances than declines (again in general) on the BSE. But note that if the Sensex is in green, it does not necessarily mean that other BSE indices like the BSE 100 etc would also follow suit. The performance of two indices is derived from the value gained or lost by the underlying stocks on that day and not by the market movement in general, though most times the Sensex falling would also see the market in red, but this not being a rule.

Similarly the NIFTY is an Index comprising 50 stocks, BSE IT would comprise only the IT companies (not necessarily all) that are listed on the BSE etc.