DRAW BACK OF NSE INDEX
The 20 companies sample whose share prices are used to compute the index are not true representatives.
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The base year of 1996 is too far in the past
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New companies are not included in the index yet other firms have been suspended/deregistered e.g. ATH, KFB etc.
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Dormant firms – Some of the 20 firms used are dormant or have very small price changes.
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Thinness of the market – small changes in the active shares tend to be significantly magnified in the index
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The weights used and the method of computation of index may not give a truly representative index.