Stock Market Indices

Indices (Index)
• Index provides information about the price movements of products in
the financial, commodities or any other markets
• Financial Index is constructed to measure price movements of stocks,
bonds, T-Bills, and other forms of investments.
• Stock market Index capture overall behaviour of equity markets
• It is created by selecting a group of stocks which represents the whole
market or sector or segment of the market.
• An Index is calculated with reference to a base period and base index
value
Advantages of Indices
• Provide historical comparison of returns on money invested in the stock
against the other investment avenues like gold, real asset, Debt etc
• They are used as a standard against which to compare performance of
equity fund
• It is a lead indicator of the performance of the overall economy or a sector
of the economy
• They reflect highly up to date information
• They play a major role in financial investments and risk management
• They are used by Technical analysts to predict future trend of
market/sector
• They help to find out the broad trend in the market
Types of Stock Index
• There are two types of stock index –
1. Price Index – It gives an idea about the general price movement of the
constituents that reflects the entire market / sector

2. Wealth Index – It gives an idea about the real wealth created for
shareholders over a period of time
Differences between the Indices
Following are the factors that differentiate one index from the other –

1. Number of the component stocks

2. Composition of the stocks
3. Weight of the stocks
4. Choice of the base year
Criteria for Selecting Stock to calculate Index
• Listing History – The company should be listed on the stock exchange
for more than one year
• Track Record – The company should have listing history
• Market Capitalization – Should be among the top Capitalization
companies in the stock exchange
• Frequency of Trading – Company stock should be traded on each and
every trading day over the last one year
• Industrial representation – Company should be among the leaders in
the sector / Industry
Market Capitalization
• Market Capitalization is the total worth of all outstanding (issued)
shares of a company. It represents the total worth of a company

Market Capitalization = No of shares outstanding x market price of share

• Free Float Market Capitalization – Free float concept is an Index
construction methodology which makes use of free float shares in the
market
• Free Float Market Capitalization is the total worth of all shares of a
company which are available for trading in open market. These
shares are called free float shares and are available for trading by
anyone.
Free Float Factor Methodology
• The free float is a measure of actual availability of stocks of a company in the
market for public investment.
• Free float factor is used for calculating free float market capitalization of a
company.
• Free-float market capitalization takes into consideration only those equity shares
issued by the company that are readily available for trading in the market and
DVR shares are not considered in the calculation of free-float market
capitalization.
• The goal to calculate Free Float is to distinguish between strategic (control)
shareholders, whose holdings depend on concerns such as maintaining control
rather than the economic fortunes of the company, and those holders whose
investments depend on the stock's price and their evaluation of a company's
future prospects.
• Free float market capitalization is used for the computation of indices.
Free Float Factor Methodology
• While calculating free-float market capitalization the following categories
of shareholdings are generally excluded:

• Shares held by founders/directors/acquirers which have control element

• Shares held by persons/ bodies with "Controlling Interest"
• Shares held by the Government(s) as promoters/acquirers
• Holdings through the FDI route
• Strategic stakes by private corporate bodies/ individuals
• Equity held by associate/group companies (cross-holdings)
• Equity held by Employee Welfare Trusts
• Locked-in shares and shares which would not be sold in the open market in normal
course
Example: Free Float
Company ‘XYZ Ltd’ issues 10000 shares, out of which 2000 shares held by
government, 5000 shares by directors of the company and remaining 3000
shares are available in the open market for trading.
Market price of share is 100 Rs. Here;
• Total Shares = 10000
• Shares Held by Government = 2000
• Shares Held by Directors = 5000
• Shares available in the Open Market = 3000
• Market price of share = Rs 100
Here total market capitalization of the company is 10,000 X Rs100 =Rs
10,00,000 and Free float market capitalization of the company is 3000 X
Rs100 =Rs 300,000
BSE SENSEX Index
• Sensex is calculated using Free Float Market Capitalization
• It is an index that consists of 30 stocks which are actively traded
• The 30 stocks represents different sectors such are services telecom,
consumer goods, metals, banks, etc
• Base Period for Sensex is 1979 and Base value is 100
• The criteria for selecting these 30 stocks are –
Qualitative Criteria
 Industry Representation
 Track Record
Quantitative Criteria
 Market Capitalization
 Liquidity
List of Companies in BSE SENSEX
• ASIANPAINT • ICICIBANK • RELIANCE
• AXISBANK • INDUSINDBK • SBIN
• BAJAJ-AUTO • INFY • SUNPHARMA
• BAJFINANCE • ITC • TATAMOTORS
• BHARTIARTL • KOTAKBANK • TATASTEEL
• COALINDIA • LT • TCS
• HCLTECH • M&M • VEDL
• HDFC • MARUTI • YESBANK
• HDFCBANK • NTPC List to be revised
• HEROMOTOCO • ONGC
• HINDUNILVR • POWERGRID
 NSE Nifty Index
• It is an Index that was established by India Index Services Limited (IISL) and Credit Rating
Information Services of India Ltd (CRISIL)
• It is also known as S&P CNX Nifty because it has a strategic alliance with Standard and
Poor Rating services.
• It is also traded in other countries globally as CNX Nifty as an Index
• The 50 stocks represents different sectors such are services telecom, consumer goods,
metals, banks, etc
• The objective of Nifty-50 Index are as follows –
• To provide a tool for managers to measure market returns
• To reflect the price movement of the market
• Selection Criteria –
• Market Capitalization – The index include stocks with significant market capitalization of Rs 5
Billion or more
• Liquidity – it is calculated with impact cost criteria which determines the cost incurred in trading
an index
List of Companies in CNX Nifty 50
• Adani Ports and Special Economic Zone Ltd. • HDFC Bank Ltd. • Oil & Natural Gas Corporation Ltd.
• Asian Paints Ltd. • Hero MotoCorp Ltd. • Power Grid Corporation of India Ltd.
• Axis Bank Ltd. • Hindalco Industries Ltd. • Reliance Industries Ltd.
• Bajaj Auto Ltd. • Hindustan Unilever Ltd. • State Bank of India
• Bajaj Finance Ltd. • Housing Development Finance Corporation Ltd. • Sun Pharmaceutical Industries Ltd.
• Bajaj Finserv Ltd. • ICICI Bank Ltd. • Tata Consultancy Services Ltd.
• Bharat Petroleum Corporation Ltd. • ITC Ltd. • Tata Motors Ltd.
• Bharti Airtel Ltd. • Indiabulls Housing Finance Ltd. • Tata Steel Ltd.
• Bharti Infratel Ltd. • Indian Oil Corporation Ltd. • Tech Mahindra Ltd.
• Britannia Industries Ltd. • IndusInd Bank Ltd. • Titan Company Ltd.
• Cipla Ltd. • Infosys Ltd. • UPL Ltd.
• Coal India Ltd. • JSW Steel Ltd. • UltraTech Cement Ltd.
• Dr. Reddy's Laboratories Ltd. • Kotak Mahindra Bank Ltd. • Vedanta Ltd.
• Eicher Motors Ltd. • Larsen & Toubro Ltd. • Wipro Ltd.
• GAIL (India) Ltd. • Mahindra & Mahindra Ltd. • Yes Bank Ltd.
• Grasim Industries Ltd. • Maruti Suzuki India Ltd. • Zee Entertainment Enterprises Ltd.
• HCL Technologies Ltd. • NTPC Ltd. List to be revised
CNX Nifty Junior (Nifty Next 50)
• It consists of the next 50 stocks after Nifty50
• Companies having a market capitalization of Rs 2 Billion or more are
included in this index
• Liquidity criteria for this index is same as that for CNX Nifty
S&P CNX 500
• It is an index that consists of top 500 stocks
• The stocks of the company that are going to be traded are selected on
the basis of various factors like market capitalization, trading interest
and financial performance
• It provides a basis for comparing the portfolio returns with market
returns
Major Sector Indices on NSE
• Nifty Auto Index
• Nifty Bank Index
• Nifty Financial Services Index
• Nifty FMCG Index
• Nifty IT Index
• Nifty Media Index
• Nifty Pharma Index
• Nifty Private Bank Index
• Nifty PSU Bank Index
• Nifty Realty Index
• Nifty500 Industry Indices Index
Major Sectorial Indices on BSE
• S&P BSE Basic Materials • S&P BSE AUTO
• S&P BSE Consumer Discretionary Goods• S&P BSE BANKEX
& Services • S&P BSE CAPITAL GOODS
• S&P BSE Energy • S&P BSE CONSUMER DURABLES
• S&P BSE Fast Moving Consumer Goods • S&P BSE METAL
• S&P BSE Finance • S&P BSE OIL & GAS
• S&P BSE Healthcare • S&P BSE POWER
• S&P BSE Industrials • S&P BSE REALTY
• S&P BSE Information Technology • S&P BSE TECK
• S&P BSE Telecom
• S&P BSE Utilities
ELECTRONIC TRADING
• The individual investor can get insistent confirmation of his trade in
the electronic trading system.
• It also facilitates online investing by bringing investor closer to the
market.
• The advantage of electronic trading is that it brings more
transparency by displaying all buy and sell orders in the trading
system.
• The types of transactions that are usually carried out on the indian
stock exchanges include.
1. Spot delivery transactions.
2. Future and forward transactions.
BUYING AND SELLING OF SECURITIES
• Stock transaction takes place in three major steps:
• Placing order (buy or sell ) online: there are two methods for placing
orders.
A. Online stock trading: The online trading is done by self. For online trading
you need computer, internet connection, demat and trading account.
B. Offline stock trading: The order will be placed by the broker on behalf of
the buyer. The buyer doesn’t need any computer and internet connection.
• The order goes to the broker ( like India Bulls, ICICI direct etc.)
• From broker the order goes to stock exchange ( either BSE or NSE)
and finally based on offer price the order get executed.
ONLINE STOCK TRADING
• Online stock trading is a facility based on trading of the stocks.
• The investors can easily trade the shares by means of an online website devoid of any
labor intensive interference from the stock brokers.
• BSE and NSE are the two exchanges in which most of the companies of online stock
trading India deal in.
• There are two different types of trading platforms available for online equity trading.
• a) Installable software based stock trading terminals: these trading terminals require software to
be installed on investors computer, and are provided by stock broker. These software require high
speed internet connections.
• b) WEB (INTERNET ) BASED TRADING APPLICATION They are like other internet websites which
investor can access from around the world through normal internet connection
• If one wants to invest in share market through online trading he needs to have three
things:
• Money.
• Demat account.
• Online trading account.
ADVANTAGES – Online Stock Trading
1. It helps in real time stock trading without calling or visiting broker’s
office.
2. It displays real time market watch, historical data, graphs etc.
3. It makes easy to invest in IPOs, mutual funds and bonds.
4. One can check demat account balance and bank account balance at
any time.
5. It offers customer service through Email or chat.
6. It secures transactions
7. It provides online tools like market watch, graphs and
recommendations to do analysis of stocks.
DISADVANTAGES – Online Stock Trading
1. The procedure of online stock trading in India is a bit long-learning
procedure for those who are not aware about the internet and
computer technology.
2. Sometimes the site is very slow and is not enough user friendly.
3. Brokerages are little high.