Investors have many misconceptions and misunderstanding regarding Stock Market Indices

There are many misconceptions and misunderstanding relating to the benchmark indices SENSEX and NIFTY among the investors and traders.

Below are some of them,

• ·         All stocks follow the index.
  ·         Generally the stocks are completely correlated with the benchmark indices i.e. when the benchmark index goes up all stocks go up and when the benchmark index go down all stocks go down.
  ·         When the benchmark index has risen all stocks in the index has risen and when the benchmark index has fallen all stocks in the index have declined.
  ·         You cannot get positive return in index and non index stock when the benchmark index has declined. You get return only when the benchmark index has risen.
  ·         The index is same. It is a separate entity itself and there are no changes in its formation or its characteristics. The index is same as it was in 1980, as it was in 2000 or 2008 as it is in 2012. (In reality, Index is ever changing i.e their constituent gets changed year by year. Today the index is not same as it was in 1980 or 2000 or 2008. The index in fact is the showcase of the volatility and market behavior of today and not yesterday)
  
  
  ·         Index always retests its higher levels if it crashes due to bear market and Index always retests its lower levels if it rises in bull market.
  ·         Index is the barometer of an economy. (Yes, this is also untruth, if not completely than partially, and partial truth is never truth)
  ·         Index levels can be manipulated.
  ·         Broad index is better than narrow index i.e. NIFTY50 is better than SENSEX30.
  ·         Index always reflects the true state of the entire stock market.
  ·         There are similar stocks in both sensex and nifty indices
  ·         The broad market (majority of listed stocks) is narrow, choppy and unvolatile when the benchmark indices are steady and unvolatile.
  Investment should be made only when the indices are rising, and the falling indices are not good for investing.
  Investment should be made only when the index has risen or start rising other wise not.