Indian Stock Exchange

NSE and how their

indices are calculated

What is a Stock
Exchange?
Stock exchange is that place
where trading of shares is done
in terms of sale and purchase.

INDIAN STOCK
EXCHANGES AND THEIR
INDICES

Indices: SENSEX & NIFTY

Stock Market performance is
quantified by calculating an index
using the benchmark scrips and as
known to all SENSEX (Sensitive
Index) is associated with Bombay
Stock Exchange and S&P CNX NIFTY
is associated with National Stock
Exchange

Stock Exchange Of
India Limited - NSE

Definition of 'National Stock Exchange Of

India Limited - NSE'
The National Stock Exchange is India's
largest financial market. Established in
1992, the NSE has developed into a
sophisticated, electronic market, which
ranks third in the world for transacted
volume. The NSE conducts transactions in
the wholesale debt, equity and derivative
markets.

Investopedia explains 'National Stock

Exchange Of India Limited - NSE'
Based in Mumbai, India, the National Stock
Exchange is a leader in market technology.
The exchange'ssupports more than 3,000
VSAT terminals, making the NSE the
largest private wide-area network in the
country. The National Stock Exchange has
been a pioneer for Indian financial
markets, being the first electronic limit
order book to trade derivatives andETFs

NSE: National Stock

Exchange
The National Stock Exchange
(NSE), located in Bombay, is
India's first debt market. It was
set up in 1993 to encourage
stock exchange reform through
system
modernization
and
competition.
It
opened
for
trading in mid-1994. It was
recently accorded recognition
as a stock exchange by the
Department of Company Affairs.
The instruments traded are,
treasury
bills,
government
security and bonds issued by
public sector companies

NSE: National Stock

Exchange
Type
Location
Coordinates
Founded
Owner
Keypeople
Currency
No.oflistings
MarketCap

Stock Exchange
Mumbai, India
19337N 725135E
1992
National Stock Exchange of India Limited
Ravi Narain (MD)
Indian rupee ( )
1,646

Indexes

US$1.5 trillion (Juln2014)[1]

S&P CNX Nifty
CNX Nifty Junior
S&P CNX 500

Website

www.nseindia.com

NSE-CorporateOffice
National Stock Exchange of India Ltd.
Exchange Plaza,
Plot no. C/1, G Block,
Bandra-Kurla Complex
Bandra (E) Mumbai - 400 051.
Tel No: (022) 26598100 - 8114
Fax No: (022) 26598120
NSE-BranchOffices
Mumbai
6th Floor, Kohinoor City, Tower -1,
Commercial - II, Kirol Road,
Off. L.B.S. Marg,
Kurla (W),
Mumbai - 400 070
Tel. No : (022) 25045300
Fax No: (022) 25045298

Ahmedabad
Office No. 304/305
GCP Business Centre
Opposite Memnagar Fire Station
Memnagar
Ahmedabad - 380052
Tel No : (079) 26420481/ 26420482
Fax No : (079) 26420485

Chennai
National Stock Exchange of India Ltd
8th Floor, Arihant Nitco Park,
No 90, Dr Radhakrishnan Salai,
Mylapore, Chennai 600 004.
Tel No : (044)-28479900 / 28479902-05
Fax No : (044) 28479926/27

Delhi
4th Floor,
Jeevan Vihar Building
Parliament Street
New Delhi-110001
Tel No: (011) 23741741, 49393000
Fax No: (011) 23459291, 49393091

Hyderabad
H No.3-6-322
Mahavir House, IInd Floor
Chamber no.203 & 204
Basheerbagh
Hyderabad - 500029
Tel No: (040) 23227084, 23227085
Fax No: (040) 23227086

Kolkata
1st Floor, Park View Apartments
99, Rash Behari Avenue,
Kolkata 700 029.
Tel No : (033) 4040 0400, 24631802
Fax No : (033) 4040 0440, 24631791

Origins
The National Stock Exchange of India was set up by
Government of Indiaon
the
recommendation
of
Pherwani Committee in 1991.Promoted by leading
Financial institutionsessentially led byIDBIat the
behest of theGovernment of India, it was incorporated
in November 1992 as a tax-paying company. In April
1993, it was recognized as astock exchangeunder the
Securities Contracts (Regulation) Act,
1956.
NSE
commenced operations in the WholesaleDebt Market
(WDM) segment in June 1994. TheCapital market(
Equities) segment of the NSE commenced operations
in November 1994, while operations in theDerivatives
segment commenced in June 2000

Objectives
Establishing nationwide trading facilities
for all types of securities.
Ensuring equal access to investors allover the country through an appropriate
communication network.
Meeting international benchmarks and
standards.
Enabling shorter settlement cycles and
book entry settlements.

Products

NSE has launched several

stock indices, including
S&P CNX Nifty (Standard & Poor's
CRISIL NSE Index)
CNX Nifty Junior
CNX 100 (= S&P CNX Nifty + CNX
Nifty Junior)
S&P CNX 500 (= CNX 100 + 400
major players across 72 industries)
CNX Midcap (introduced on 18 July
2005 replacing CNX Midcap 200)

S&P CNX Nifty

TheS&P CNX Nifty, also called theNifty 50or simply
theNifty, is astock market indexand benchmark index for
indian equity market. Nifty is owned and managed by
India Index Services and Products Ltd. (IISL), which is a joint
venture betweenNSEandCRISIL(Credit Rating and Information
Services of India Ltd).IISLis India's first specialized company
focused upon the index as a core product.IISL has a marketing
and licensing agreement withStandard & Poor'sfor co-branding
equity indices. 'CNX' in its name stands for 'CRISIL NSE Index'.
S&P CNX Nifty has shaped up as the largest single financial
product in India, with an ecosystem comprising: exchange
traded funds (onshore and offshore), exchange-traded futures
and options (atNSEinIndiaand atSGXandCMEabroad), other
index funds and OTC derivatives (mostly offshore).

 Graph of S&P CNX Nifty from January 1997 to March 2011

The S&P CNX Nifty covers 22 sectors of theIndian economyand
offers investment managers exposure to the Indian market in
one portfolio. The S&P CNX Nifty stocks represents about 67.27%
of the free float market capitalization of the stocks listed at
National Stock Exchange(NSE) as on September 30, 2012.
The S&P CNX Nifty index is a free float market capitalisation
weighted index. The index was initially calculated on full market
capitalisation methodology. From June 26, 2009, the computation
was changed to free float methodology. The base period for the
S&P CNX Nifty index is November 3, 1995, which marked the
completion of one year of operations ofNSE's Capital Market
Segment. The base value of the index has been set at 1000, and
a base capital of Rs 2.06 trillion.[1]The S&P CNX Nifty Index was
developed by Ajay Shah and Susan Thomas.

Currency of Calculation
For the S&P CNX Nifty, all prices
are in Indian rupees.

Base Date
The base period for the S&P CNX
Nifty index is November 3, 1995,
which marked the completion of
one year of operations of NSE's
Capital Market Segment. The base
value of the index has been set at
1000, and a base capital of Rs
2.06 trillion.

Partnership
The S&P CNX Nifty is owned and
managed by India Index Services and
Products Ltd. (IISL), which is a joint
venture between the NSE and CRISIL.
IISL is Indias first specialized
company focused on an index as a
core product. IISL has a licensing and
marketing agreement with Standard
& Poors, who is a world leader in
index services.

Highlights
The S&P CNX Nifty is a 50 stock, floatadjusted market-capitalization weighted
index for India, accounting for 21
diversified sectors of the economy. It is
used for a variety of purposes, such as
benchmarking fund portfolios, index based
derivatives and index funds.
The S&P CNX Nifty is derived from economic
research and is created for those interested
in investing and trading in Indian equities.

Market Representation. &

Diversification.
Market Representation.
The S&P CNX Nifty stocks represent about 65%
of the total float-adjusted market capitalization
of the National Stock Exchange (NSE).

Diversification.
The S&P CNX Nifty is a diversified index,
accurately reflecting the overall market. The
reward-to-risk ratio of S&P CNX Nifty is higher
than other leading indices, offering similar
returns but at lesser risk.

Liquidity.
Market impact cost is the best measure of the
liquidity of a stock. It accurately reflects the costs
faced when actually trading an index. For a stock
to qualify for inclusion in the S&P CNX Nifty, it
has to reliably have market impact cost below
0.50 %, when doing S&P CNX Nifty trades of
Rupees (Rs) 20 million. The current impact cost
of the S&P CNX Nifty for a portfolio size of Rs 20
million is 0.13%.

Hedging
Effectiveness.

The basic risk of the S&P CNX Nifty

futures is lower than other index
portfolios, due to the liquidity of the
S&P CNX Nifty constituent stocks
and of the NSE. In addition, the S&P
CNX Nifty has higher correlations
with typical investment portfolios in
India, compared to other indices.
These two factors allow for effective
hedging of the Index.

Index Family
S&P CNX Defty.
The S&P CNX Defty is a U.S. dollardenominated index based on the S&P CNX
Nifty. This index was developed to provide
a benchmark of Indian stocks to
international investors, providing them
with an instrument for measuring returns
on their equity investment in dollar terms.
This ensures that the risk arising out of
currency fluctuation is covered through
the S&P CNX Defty.

S&P CNX Niftycompanies of

India

ACC
Ambuja Cements
Asian Paints
Axis Bank
Bajaj Auto
Bank of Baroda
BHEL
BPCL
Bharti Airtel
Cairn India
Cipla
Coal India
DLF
Dr. Reddy's Laboratories
GAIL
Grasim Industries
HCL Technologies
HDFC

HDFC Bank
Hero MotoCorp
Hindalco Industries
HUL
Infosys
ICICI Bank
IDFC
ITC Limited
Jaiprakash Associates
Jindal Steel and Power
Kotak Mahindra Bank
L&T
Lupin
Mahindra & Mahindra
Maruti Udyog
NTPC
ONGC

Power Grid Corporation

PNB
Ranbaxy Laboratories
Reliance Infrastructure
Reliance Industries
Sesa Goa
Siemens
SBI
Sun Pharmaceutical
TCS
Tata Motors
Tata Power
Tata Steel
Ultratech Cement
Wipro

HOW ARE INDICES OF

SENSEX AND NIFTY
CALCULATED???

How are the SENSEX 30 &

NIFTY 50 Stocks are
selected?
Listing History
Trading Frequency
Rank based on the Market Cap (Should
be Among top 100)
Market Capitalization weight
Industry / sector they belong
Historical Record

Free Float Market

Capitalization??
The value of all the shares
available for public trading
excluding
the
promoter
equity, holdings through FDI
Route, Holdings by private
corporate, and holdings by
Employee Welfare Funds.

Why Free Flow Market Cap?

1. It depicts the market more rationally
2.
It removes undue influence of
government or promoter share holding,
there by giving the equal opportunity for
companies to be in the NIFTY
3. Almost all the Indices world over are
calculated by this methodology
4. It gives Fund managers more authentic
information for benchmark comparisons.

SENSEX & NIFTY

CALCULATION
METHODOLOGY

 SENSEX is calculated using the "Free-float Market

Capitalization" methodology, wherein, the level of index at any
point of time reflects the free-float market
It reflects value of 30 component stocks relative to a base
period.
The market capitalization of a company is determined by
multiplying the price of its stock by the number of shares
issued by the company.
This market capitalization is further multiplied by the freefloat factor to determine the free-float market capitalization.

 The base period of SENSEX is 1978-79 and the base value is

100 index points. ( notation 1978-79=100).

The calculation of SENSEX involves dividing the free-float

market capitalization of 30 companies in the Index by a
number called the Index Divisor.

The Divisor is the only link to the original base period value
of the SENSEX. It keeps the Index comparable over time and
is the adjustment point for all Index adjustments arising out
of corporate actions, replacement of scrips etc.
During market hours, prices of the index scrip's, at which
latest trades are executed, are used by the trading system to
calculate SENSEX every 15 seconds. The value of SENSEX is
disseminated in real time.

How
SENSEX
is
The formula for calculating the
SENSEXcalculated?
= (Sum of free flow market cap
of 30 benchmark stocks)*Index Factor
where,
Index Factor = 100/Market Cap Value
in 1978-79.
100 is the Index value during 1978-79.

Example:
Assume SENSEX has only 2 stocks namely SBI
and RELIANCE. Total shares in SBI are 500 out
of which 200 are held by Government and only
300 are available for public trading. RELIANCE
has 1000 shares out of which 500 are held by
promoters and 500 are available for trading.
Assume price of SBI Stock is Rs.100 and
Reliance is Rs.200. Then "free-Floating Market
Cap" of these 2 companies =

(300*100+500*200) = 30000+100000 = Rs.

130000
Assume Market Cap during the year 1978-79
was Rs.25000
Then SENSEX = 130000*100/25000 = 520.
The methodology in the example is exactly
followed to calculate the SENSEX, only
difference being the inclusion of 30 stocks.

Calculations of the
S&P CNX Defty
The U.S. dollar/Rupee exchange rate is based on a real-time
polled indicative data feed, which contains bid/ask rates at a
point in time. The polled data is sourced from Thomson
Reuters. The data is polled from market participants, including
leading nationalized banks, private Indian banks and foreign
exchange brokers. The frequency of polled data is more than 34 updates per minute, depending on market volatility, totaling
more than 1000 updates in a day. The closing value of S&P
CNX Defty is computed based on a simple average of the U.S.
dollar/Rupee exchange rates received during the last half an
hour of trading on the National Stock Exchange of India Ltd.
(NSE) and applied to the closing value of the S&P CNX Nifty.

Index Closure Algorithm

The closing SENSEX & NIFTY on any trading day is computed taking
the weighted average of all the trades on SENSEX & NIFTY
constituents in the last 30 minutes of trading session.
If a SENSEX & NIFTY constituent has not traded in the last 30
minutes, the last traded price is taken for computation of the
Index closure.
If a SENSEX & NIFTY constituent has not traded at all in a day, then
its last day's closing price is taken for computation of Index
closure.
The use of Index Closure Algorithm prevents any intentional
manipulation of the closing index value.

NIFTY
The National Stock Exchange (NSE) is associated
with NIFTY and it is also calculated by the same
methodology but with two key differences.
1. Base year is 1995 and base value is 1000.
2. NIFTY is calculated based on 50 stocks.
Everything else remains the same in NIFTY Index
calculation as well.

Benefits of Stock
Exchanges to Community

1. It assist the economies development by

providing a body of interested investors.
2. It uploads the position of superior
enterprises and assist them in raising
further funds.
3. It encourages capital formation
4. Government can undertake projects of
national importance and social value raising
funds through the sale of its securities on
the stock exchange.
5. It is the stock exchanges that central bank
of a country can control credit by
undertaking open market operations
(purchase and sale of securities)

Benefits to Investor
1. Liquidity of the investment is increased
2. The securities dealt on a stock exchange
are good collateral security for loans.
3. The stock exchange safeguards
interests of investors through strict
enforcement of rules and regulations.
4. The present net worth of investments
can be easily known by the daily
quotations.
5. The risk is considerably less when
investor holds or purchases listed
securities.

Benefits to the company

1. A company whose shares quoted on stock
exchange they enjoy better reputation
and credit.
2. The market for the shares of such a
company is naturally widened.
3. The market price of securities is likely to
be higher in relation to its earnings,
dividends and property values. This
raises the bargaining power of the
company in the event of a takeover,
merger or amalgamation.

ADJUSTMENTS FOR
BONUS, RIGHTS AND
NEWLY ISSUED CAPITAL

Adjustment for Bonus,

Rights and Newly Issued
Capital
NIFTY calculation needs to be adjusted for issue
of Bonus or Rights shares, If no adjustments are
made, a discontinuity would arise between the
current value of the index and its previous value
despite the non-occurrence of any economic
activity of substance
At the NSE Index Cell , the base value is adjusted,
which is used to alter market capitalization of the
component stocks to arrive at the NIFTY value.

Adjustments for Rights Issues

When a company, included in the compilation of
the index, issues right shares, the free-float
market capitalization of that company is
increased by the number of additional shares
issued based on the theoretical price.
An offsetting or proportionate adjustment is
then made to the Base Market capitalization (see
'Base Market capitalization Adjustment' below).

Adjustments for Bonus Issue

When a company, included in the compilation of the
index, issues bonus shares, the market capitalization of
that company does not undergo any change. Therefore,
there is no change in the Base Market capitalization,
only the 'number of shares' in the formula is updated.
Other Issues
Base Market capitalization adjustment is required when
new shares are issued by way of conversion of
debentures, mergers, spin-offs etc. or when equity is
reduced by way of buy-back of shares, corporate
restructuring etc.

Base Market capitalization

Adjustment

The formula for adjusting the Base Market capitalization

is as follows:
New Market capitalization
Old
Base
Mkt.
cap.
x
New Base Mkt.
cap.
=
------------------------------Old Market capitalization
To illustrate, suppose a company issues right shares
which increases the market capitalization of the shares
of that company by say, Rs.100 crores. The existing
Base Market capitalization (Old Base Market
capitalization), say, is Rs.2450 crores and the aggregate
market capitalization of all the shares included in the
index before the right issue is made is, say Rs.4781
crore

 2450 x (4781+100)
-------------------------- =Rs.2501.24crores
4781
This figure of Rs. 2501.24 crore will be used
as the Base Market capitalization for
calculating the index number from then
onwards till the next base change becomes
necessary.

Bibliogra
phy:
NSE web
site
NSE
brochure
Wikipedia

THANK YOU