Financial Markets

Tarunika Jain Agrawal

Criteria for Selection of Constituent

Stocks
Impact cost

The security should have traded at an average impact cost of 0.75% or less during the
last six months for 90% of the observations.

Market Capitalization

Must have a six monthly average market capitalization of Rs.500 crores or more
during the last six months

Floating Stock

should have at least 12% floating stock

Others

A company which comes out with a IPO will be eligible for inclusion in the index,
if it fulfills the normal eligibility criteria for the index like impact cost, market
capitalization and floating stock, for a 3 month period instead of a 6 month period

CNX Nifty Junior

The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty
Junior
Maintenance of the S&P CNX Nifty and the CNX Nifty Junior are
synchronized so that the two indices will always be disjoint sets
Base date and base value for nifty junior are November 03, 1996 and
1000 respectively along with a base capital of Rs 0.43 trillion
Average traded value for the last six months of all Junior Nifty stocks
is approximately 9.88 % of the traded value of all stocks on the NSE
represents about 10.08% of the total market capitalization
Impact cost for CNX Nifty Junior for a portfolio size of Rs.2.50 million
is 0.14%

Criteria for Selection of Constituent

Stocks

Impact cost : the security should have traded at an average

impact cost of 1.5% or less during the last six months for 90% of
the observations.

Market Capitalization: must have a six monthly average market

capitalization of Rs.200 crores or more during the last six months

Floating Stock : should have at least 12% floating stock

Others : A company which comes out with a IPO will be eligible

for inclusion in the index, if it fulfills the normal eligibility
criteria for the index like impact cost, market capitalization and
floating stock, for a 3 month period instead of a 6 month period

Criteria for Selection of Constituent Stocks

(S&P CNX 500)

Market Capitalization: A companys rank on market capitalization is an

important consideration for its inclusion in the Index.

Trading Interest : Includes those companies which have a minimum

listing record of 6 months on the Exchange. In addition these companies
must have demonstrated high turnover and trading frequency.

Industry Representation :

Industry weightages in the index mirror the industry weightages in the universe

Currently contains 72 industries, including one category of diversified companies and one
category of miscellaneous

Financial Performance : includes companies that have minimum record

of three years with a positive net worth

CNX Midcap

Midcap segment is increasingly perceived as an attractive investment segment with

high growth potential.

The primary objective of the CNX Midcap Index is to capture the movement and be a
benchmark of the midcap segment of the market.

The CNX Midcap Index has a base date of Jan 1, 2003 and a base value of 1000

Selection of the index set is based on the following criteria:

Market Capitalization

Financial Performance

Trading Interest

Methodology for CNX Midcap

a)

All the stocks, which constitute more than 5% market capitalization of the universe (after
sorting the securities in descending order of market capitalization), shall be excluded in
order to reduce the skewness in the weightages of the stocks in the universe.

b)

After step (a), the weightages of the remaining stocks in the universe is determined again.

c)

After step (b), the cumulative weightage is calculated.

d)

After step (c) companies which form part of the cumulative percentage in ascending order
unto first 75 percent (i.e. upto to 74.99 percent) of the revised universe shall be ignored.

e)
f)

After, step (d), all the constituents of S&P CNX Nifty shall be ignored.
From the universe of companies remaining after step (e) i.e. 75th percent and above, first
100 companies in terms of highest market capitalization, shall constitute the CNX Midcap
Index subject to fulfillment of the criteria mentioned in the previous slides.

S&P CNX Defty

S&P CNX Defty is S&P CNX Nifty, measured in dollars.

Performance indicator to foreign institutional investors

Provides fund managers an instrument for measuring returns on their equity

investment in dollar terms.

The base date is 03 November 1995, indexed to a value of 1000.

Exchange rate as on base date was Rs. 34.65 / dollar.

Computations are done using the S&P CNX Nifty index calculated on the NEAT
trading system of NSE and USD Rupee exchange rate that is based on the real
time data feed

S&P CNX Defty = S&P CNX Nifty at time t * Exchange rate (base date)
Exchange rate at time t

Free Float Shares

Total Outstanding Shares

Less
Holdings

by founders/directors/ acquirers which has control

element
Holdings

by persons/ bodies with "Controlling Interest"

Government
Holdings
Strategic

holding as promoter/acquirer

through the FDI Route

stakes by private corporate bodies/ individuals

Equity

held by associate/group companies (cross-holdings)

Equity

held by Employee Welfare Trusts etc

INTERNATIONAL STOCK INDICES

NEW YORK STOCK EXCHANGE (NYSE)COMPOSITE INDEX

NASDAQ COMPOSITE INDEX

THE DOW JONES INDUSTRIAL AVERAGE

NIKKEI STOCK AVERAGE

UK FTSE 100 INDEX (FOOTSIE)

Construction: Basic Information, Base year and Base

Value, Weightage system, Criteria of selection etc.

BOND INDICES

NSE Fixed Income Indices

GSEC10 NSE index is constructed using the prices of top 5 ( in terms of

traded value) liquid GOI bonds with residual maturity between 8 to 13 years
and have outstanding issuance exceeding Rs.5000 crores. The individual bonds
are assigned weights considering the traded value and outstanding issuance in
the ratio of 40:60.The index measures the changes in the prices of the bond
basket.

Index has a base date of Jan 03, 2011 and base value of 1000

The GSECBM NSE Index is constructed using the price of 10 year bond issued
by the Central Government, India. The index seeks to track the performance
of the 10 year benchmark security.

The index has a base date of Jan 03, 2011 and base value of 1000

NSE ZCYC (Zero coupon yield curve)

Help in valuation of sovereign securities across all maturities irrespective of its liquidity.

The product has been developed keeping in mind the requirements of the banking
industry, financial institutions, mutual funds, insurance companies, etc. that have
substantial investment in sovereign papers.

Use as a benchmark , realistic valuations

Starts from the basic premise of time value of money

Depicts the relationship between interest rate and maturity for a set of similar
securities, as on a given date

Different spot interest rates associated with different time to maturity with longer term
offering a term spread over short period.

The term structure of interest rates, or ZCYC, is the set of such spot interest rates. This is
the principal factor underlying the valuation of most fixed income instruments.

Uses of ZCYC

The uses that an estimate of the term structure can be put to are immense.
Once an estimate of the term structure based on default-free government
securities is obtained, it can be used to price all non-sovereign fixed income
instruments after adding an appropriate credit spread. It can be used to value
government securities that do not trade on a given day, or to provide defaultfree valuations for corporate bonds. Estimates of the ZCYC at regular
intervals over a period of time provides us with a time-series of the interest
rate structure in the economy, which can be used to analyze the extent of
impact of monetary policy. This also forms an input for VaR systems for fixed
income systems and portfolios.

CRISIL Composite Bond Fund Index

CRISIL Composite Bond Fund Index seeks to track the performance of a debt
portfolio that includes government securities and AAA/AA rated corporate bonds.

Total Return Index seeking to capture coupon and price returns of the underlying
portfolio
Base date for the Index : March 31, 2002
Index portfolio marked-to-market on a daily basis using CRISIL Gilt and Bond
valuations
Index is fully invested at all points of time with no cash component
Derived index from the following sub-indices
CRISIL Gilt Index
CRISIL AAA Long Term Bond Index
CRISIL AAA Short Term Bond Index
CRISIL AA Long Term Bond Index
CRISIL AA Short Term Bond Index

Key Characteristics

Rich history: CRISIL Composite Bond Fund Index has an

inception date of March 31, 2002. Thus the index has been
in existence over a decade, seen multiple interest rate
cycles, and has stood the test of time

Liquidity: The index seeks to capture the movement in a

portfolio consisting of most liquid government and
corporate securities by using appropriate market
representation

Replicability: The index constituents are valued on a daily

basis. This lends the index a realistic approach by having
the valuations close to the market levels