The bad thing about indices ... you know it was coming ... is that there are so many of them.
On last count, NSE site listed as many as 33 separate indices (or is it indexes?)
There are 8 broad market ones such as cnx nifty, nifty junior, cnx 500 etc. Then there are 11 covering sectors such as cnx pharma, cnx realty etc. Then it gets pretty esoteric: we have indexes covering themes such as consumption and strategies such as low volatility.
Which ones should you track? Ideally, you want to track only the unique ones which are not so correlated with other.
I calculated the co-relation matrix of the indices with each other based on daily returns in 2012.
As you can see from image (click for larger view), only the FMCG, Pharma, IT and media indexes have their own personality. All others are highly co-related with each other.
Maybe IT and pharma have something common in that they are dominated by companies which are export oriented and benefit by depreciating Rupee which was the case in 2012.
Though this analysis was based on 2012 data, the above co-relations continue to be valid so far in 2013. Pharma, FMCG and IT were the only indices trading above their 50 day moving average as of today.
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