Stock market indices are the barometers of the stock market. They mirror the stock

market behavior. With some 7000 companies listed on the Bombay Stock exchange, it is not possible to look at the prices of every stock to find out whether the market movement is upward or downward.

1. Indices help to recognize the broad trends in the market.

2. Index can be used as a bench mark for evaluating the investors’ portfolio.

3. Indices function as a status report on the general economy. Impacts of the various economic policies are reflected on stock market.

4. The investor can use the indices to allocate funds rationally among stokes. To earn returns on par with the market returns, he can choose the stocks that reflect the market movement.

Some of the stock market indices are BSE Sensex, BSE—200, Dollex, NSE-50, CRISIL-500, Business Line 250 and RBI Indices of Ordinary Shares.

THE BSE SENSITIVE INDEX

The BSE Sensitive index has long been known as the barometer of the daily temperature of Indian bourses. In 1978-79 stock market contained only private sector companies and they were mostly geared to commodity production. Hence, a sample 30 was drawn from them. With the passage of time more and more companies private as well as public came into the market. Even though the number of scrips in the Sensex basket remained the same 30, representations were given to new industrial sectors such as services,telecom, consumer goods, 2 and 3 wheeler auto sector. The continuity and integrity of the index are kept intact, so that a comparison of the current market condition with those of a decade ago is made easy and any distortion in the market analysis is avoided.

STOCK MARKET INDICES