| Utility of Indices |
| An index in actual sense is a barometer of the underlying universe comparing the underlyings over two periods showing various ups and downs in the underlying market. Index is a statistical measure used to compare prices over two periods of time. Indices are generally used to track and judge the markets. An ideal index at any point in time should reflect the true state of economy or the underlying universe which it represents. In other words, it helps a layman to understand the affairs of the economy in a very simple manner by just comparing the index levels at any two points in time. An index gives the pulse of the economy/underlying which it represents and is generally also known as tracker of the economy. There are also other different types of investors who can track the indices like financial intermediateries, regulators and government agencies, fund managers, corporate sector, credit rating agencies etc as under. |
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Fund and Portfolio Mangers: Fund and Portfolio mangers can benchmark their Funds against indices and can compare their returns of their funds vis a vis indices returns. Fund Managers can also use indices for earmarking their proportion of total funds towards the sector or segment which is outperforming, which can be judged by tracking indices. It also helps Stock Exchanges to launch various products of Indices like Futures and Options or Exchange Traded Funds on the available indices in the Equity Markets.
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Credit Rating Agencies: Credit Rating Agencies can rate the companies on the basis of whether they are part of any indices or not. It is widely believed that inclusion of any company in any index is based on qualitative and quantitative criteria's and in-depth study. The inclusion or deletion of the company from the index may affect the rating of the company which can be used as tool to rate the company. |
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Corporate: As the movement of Indices is reflection of market as a whole, corporate can take a better decision whether to hit the primary markets or not for their source of funding. They can actually time their offerings according to the mood of the market which is ultimately reflected in the indices. |
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Retail Investors: It helps retail investors to know the pulse of the market by tracking the indices as it is widely believed that Indices are a better measure to track the market rather than tracking individual scrip returns. It also help retail investors to take better and informed decisions based on the index movements. |
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Media: Movements of the indices are also tracked by the Media and General Press to determine and judge the pulse of the general market. |
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