WHAT ARE STOCK MARKET INDICES? HOW DO THEY WORK

KSE INDEX:The Karachi Stock Exchange KSE-100 Index is the bench mark for our market, it comprises of the top companies from each of the 34 sectors on the KSE, in terms of market capitalization. The rest of the companies are picked on market capitalization ranking, without any consideration for the sector to make a sample of 100 common stocks with base value of 1,000 in late 1991. There are two other indices; KSE-30 Index, which is based on free float capitalization of top 30 companies and KSE all shares Index which is based on full market capitalization of all listed companies at the Exchange.An index, a composite figure, becomes a benchmark index when you choose it as the standard against which to measure your own portfolio's performance over time. Many investors like to keep track of how companies are performing in general. When a company's share price moves up or down, it shows, whether it is perceived to be lucrative by the investors.Movements in share prices are measured by various indices. These provide a benchmark against which you can compare the performance of your shareholdings.The most quoted index is the KSE-100. It comprises of the 100 largest companies on the Stock Exchange and is updated minute by minute during trading hours. The index reflecting all the companies on the Stock Exchange is the KSE-All Share Index and the KSE-30 Index comprises of top 30 companies.Various investment companies have made their own indices to keep track of the performance of their portfolios. There are three major types of indices calculated to help private investors track the performance of their investment portfolios:

1) The Income Portfolio represents the performance of a portfolio designed to provide a regular flow of income.

2) The Growth Portfolio is for the investor seeking capital growth in his or her portfolio.

3) The Balanced Portfolio represents a balanced portfolio providing both capital and income.

The indices are made up of three broad types of asset: Pakistani equities, foreign equities, bonds and PIBs.