Bse-500 and sectoral indices, Financial Management

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BSE-500 and Sectoral Indices

On August 9, 1999, another new index was introduced in the market which was based on the data of 500 companies and designated as BSE-500 index. It was a broader index as it reflected movement of 85% of the total companies and 85% of the total market capitalization. This index includes 20 major industries of the economy. The base date for this index was February 1, 1999 with a base value of 1000 points.
Close on the heels followed various sectoral (specialized) indices such as the BSE IT Sector Index, BSE FMCG Sector Index, BSE Capital Goods Sector Index, BSE Consumer Durable Index and BSE Healthcare Sector Index. The calculation of these indices is also the same as BSE Sensex.

S&P CNX 50

The two different stock indices, NSE-50 of National Stock Exchange and CRISIL 500 of Credit Rating and Information Services of India Limited, will be now maintained by India Index Services and Products which is a joint venture between NSE and CRISIL. India Index Services and Products will, in turn, have a consulting and licensing agreement with Standard and Poor. Under this agreement, the indices NSE-50 and CRISIL 500 will be now known as S&P CNX 50 and S&P CNX 500 respectively. The dollar equivalent of NSE-50 will be called S&P CNX defty. Also, we have CNX Mid Cap 200 and CNX Nifty Junior which will be maintained by India Index Services and Products for NSE and CRISIL.

Objectives of S&P CNX 50

  • The objectives of constructing this index are as follows:
  • It should reflect the market trends accurately.
  • It should act as a benchmark for fund managers to compare the return from the portfolio with the market returns.
  • It should serve as a cornerstone for index-based derivatives.
  • The base period selected for this index is the closing prices on November 3, 1995. The base value is 1000.

The criteria for eligibility to be included into the S&P CNX 50 are:

Market capitalization of Rs.500 crore, and High liquidity.

We define market capitalization of a company as the product of the market price of the share and the number of shares outstanding. Liquidity is measured in terms of trading frequency and impact cost. Impact cost is defined as the percentage difference between the executed price and the mean of the best buy and sell prices. It can be noticed that impact cost determines the liquidity of the company's stock. All the securities included in the index, necessarily satisfy the required execution on 85% of the trading days at an impact cost of less than 1.5%.

We may find quite a number of companies which satisfy these criteria, but it is left to the discretion of the exchange officials to make a final decision about the inclusion of the companies in the index.

 


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