S&P CNX 500

Here, the stocks are included as per their respective market capitalization. It includes companies which lead in their respective industry sector. They should closely resemble the sentiments of the market in order to qualify for inclusion in this index. Few other important characteristics of the companies to be included in this index are as below:

1. Six month period of listing.
2. Part of share capital with public.
3. Sufficient liquidity in quantity of shares traded and frequency with which trading took place.
4. Three years of positive net worth.

At present, this index has 79 companies which are divided into two groups. The first group reflects diversified companies and the second one includes miscellaneous companies. There is no rigidity in terms of number of industries to be included in this index. So is the case with number of industries to be included from a particular segment. It is done primarily because of the fact that the index should be able to reflect true sentiments of the market. The base value of the index is 1000 and the base year for the index is 1994.
The S&P CNX 500 reflects 72% of total market capitalization and 98% of total trading volume. It is one of the best indices that resembles the true market sentiments.

Stock indices reflect market direction as well as day-to-day fluctuations. If one wants to know the market trend as a whole and as to which direction it is moving, there should be one common indicator or index to represent the mood.

There are many reasons as to why people are concerned about the movement of aggregate security prices.

The return on individual stocks is largely dependent on the aggregate market movements. Investors would like to see the increase in share prices of their portfolio attuned to the upward mobility of an index. Investors generally compare their holdings with movements of the indices and the returns associated with them and so on. Although the returns on individual share prices are a product of a large number of economic and political events, a significant portion of such events affects the prices of all securities. Many investors believe that the market tends to move on identifiable patterns.

Investors believe that the size and direction of current moves can be related to historical movements and be used to determine the correct timing for buying or selling the securities.

• The prices of securities also depend upon various stock market indices.
• Each underlying index implies a separate portfolio strategy.
• There are a variety of indications now available but none tells the whole story of the market. On a given day, the indices may differ from one another, but over a period of time all indices generally move together.