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STOCK MARKET INDICES

STOCK MARKET INDICES

.Stock market indices give information about the price movements of securities in the stock markets. A stock market index is created by selecting a group of stocks that are representatives of the whole market or a specified sector or segment of the market. An index in derives its value from the prices of securities that constitutes the index.

Criteria for the selection of Securities

A. Quantitative Criteria

1) Market Capitalisation: The scripts should be among the top listed companies by market capitalisation.

2) Industry Representation:Scrip selection would take in to account a balanced representation of the listed companies from all the industries participating in the stock market.

3) Liquidity: Liquidity is estimated with respect to the following aspects;

a. Number of trades: Per day

b. Trading frequency: Over a specified time duration

c. Value of shares traded

d. Trading activity: The average number of shares traded per day as a percentage of the total number of outstanding shares of the company.

4) Listed history: The scrip to be included in an index should have a previous trading history in the respective stock exchange.

5) Continuity

6) Financial Performance

B. Qualitative Criteria

A stock exchange can also list out certain qualitative factors for the inclusion of a company’s scrip in its index computation. The company should preferably have a continuous dividend paying record or/and should be promoted by a management with a proven record.

Types of listed securities

1) Group A shares: The specified list includes fully paid-up equity shares listed already on the exchange at least for three years on the cash list and the company’s paid-up capital should be above Rs.10 crores.

2) Group B shares: Securities which are first listed, will be kept in non-specified or cash group.

3) Group C shares: These are not listed in the stock exchange concerned, but listed in some other exchanges. They are also permitted to be traded.

Leading Stock Price Indexes in India

(a) Mumbai Stock Exchange Sensitive Index

Mumbai stock exchange, known as BSE launched the first Stock Exchange in India in 1986, BSE launched the first Index number of share prices in India, called SENSEX. Sensex is based on the closing prices of 30 constituent shares.

It has the base year 1978-79, for which the index number is taken as 100.

(b) S&P CNX NIFTY

It is also called NIFTY. National Stock Exchange introduced NIFTY in association with Credit Rating Information Services of India Ltd. On November 3, 1995. It is a well diversified 50 stock index accounting for 25 sectors of the economy. The base value of the index has been set at 1000.

(c) CNX Mid-cap 200

There are 200 Companies in this index. The index reflects the total market value of all the stocks in the index relative to a particular base period. In Mid-cap segment, those companies are included which have a market capitalisation between Rs.75 crores and 750 crores.

Stock Market Indices – Causes for Fluctuations and Stability

  1. Supply and Demand forces
  2. News about the company
  3. News about the country/economy
  4. Industry Performance
  5. Speculative trading
  6. Psychological factors
  7. Capital gain
  8. Insider Trading
  9. Globalisation
  10. Role of regulatory authorities
  11. Lack of adequate information.

Comments

  1. Phani KumarJune 20, 2020 at 4:04 AM

    Hey, thanks for the information. your posts are informative and useful. I am regularly following your posts.
    HCL Technologies, Kotak Institutional

    ReplyDelete

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