An indice/ index that is composed of securities that are meant to represent a particular sector or industry. In other words, such an indice consists of a small number of securities and is designed to isolate the performance of a consistent group of securities, whereby avoiding overlap with other groups with diverse sectoral backgrounds. Examples of narrow-based indices (NBIs) include airline, technology, or telecom sectors. By nature, a narrow-based indice is more volatile than a broad-based indice due to the small number of components and the consistent characteristics of these components.
A narrow-based indice gauges investors’ sentiment regarding the state of a specific market sector.
