Are Indexes like Sensex and Nifty Reflective of the Overall Markets

Indices like Sensex, Nifty are a cumulative sum of products of a group of companies and their market cap(relative). The group of companies are the best performing companies in the market. But, like in the case of Satyam, just because the stock price of the company dropped within a few weeks, does it deserve to be removed from the list that make up the index. I think not.

For one thing a share price is not a definite indicator of the company's underlying value. Share prices are inflated and deflated by greed and fear respectively. Once should have checked the quarter on quarter result before replacing a company like satyam. I don't know everything that went into the decision of replacing Satyam. But one thing I can say for sure is that, if any other company is delisted just because the prices fell over few weeks,is that the index becomes a fools index only meant to mislead the public by using the best performing stock to hide the not so well performing ones.

On a final note, if a stock, which has its price free falling, delisted, the companies that have its prices skyrocket without any explanation, should also be delisted. Any statistician will tell you that while analysing readings of an experiment(like measuring temperature), you must eliminate the lower 5% and higher 5% because they could be unexplained spikes.