Nifty Manual-
The CNX Nifty is the flagship index on the National Stock
Exchange of India Ltd. (NSE). The Index tracks the behavior of a portfolio of
blue chip companies, the largest and most liquid Indian securities. Itincludes
50 of the approximately 1600 companies listed on the NSE, captures
approximately 65% of its float-adjusted market capitalization and is a
true reflection of the Indian stock market
The CNX Nifty covers 21 sectors of the Indian
economy.
Float-adjusted market capitalization- A method by which
the market capitalization of an index's underlying companies is calculated.
Free-float methodology market capitalization is calculated by taking the
equity's price and multiplying it by the number of shares readily available in
the market. Instead of using all of the shares outstanding like the full-market
capitalization method, the free-float method excludes locked-in shares such as
those held by promoters and governments.
Eligibility Criteria-
i. Liquidity- For
inclusion in the index, the security should have traded at an average
impact cost of 0.50 % or less during the last six months, for 90% of the
observations.
· Impact
cost is the cost of executing a transaction in a security in
proportion to its index weight, measured by market capitalization at
any point in time. This is the percentage mark up suffered while
buying/selling the desired quantity of a security compared to its ideal
price -- (best buy + best sell)/2.
ii. Float
-Adjusted Market Capitalization- Companies eligible for inclusion in the
CNX Nifty must have at least twice the float-adjusted market
capitalization of the current smallest index constituent.
iii. Float-
Companies eligible for inclusion in the CNX Nifty should have at least 10%
of its stock available to investors (float).
iv. Domicile- The
Company must be domiciled in India and trade on the NSE.
v. Eligible
Securities- All common shares (Equity only) listed on are eligible for inclusion
in the CNX Nifty index.
vi. Other
Variables- A company which comes out with an IPO is eligible for inclusion in
the index if it fulfills the normal eligibility criteria for the index for a
three-month period instead of a six-month period.
vii. Timing
of Changes- The index is reviewed semi-annually, and a six-week
notice is given to the market before making any changes to the index
constituents.
viii. Additions- The
complete list of eligible securities is compiled based on the float -
adjusted market capitalization criteria.
ix. Deletion- Stocks
may be deleted due to mergers, acquisitions or spin-offs (The creation of an
independent company through the sale or distribution of new shares of an
existing business or division of a parent company).
Index Construction
Constructed using float-adjusted, market capitalization
weighted methodology, adjusted for corporate action (Stock splits
etc.) without affecting index value.
Changes in the index level reflect changes in the market
capitalization of the index which are caused by stock price movements in the
market. They do not reflect changes in the market capitalization of the index,
or of the individual stocks, that are caused by corporate actions such as
dividend payments, stock splits, and distributions to shareholders, mergers, or
acquisitions.
Change in Divisor- When a stock is replaced
by another stock in the index, the index divisor is adjusted so the change
in index market value that results from the addition and deletion
does not change the index level.
Some corporate actions, such as stock splits and stock
dividends, require simple changes in the common shares outstanding
and the stock prices of the companies in the index.Other corporate actions,
such as share issuances, change the market value of an index and require a
divisor adjustment to prevent the value of the index from changing.
This is done so that the movement of the index does not
reflect the corporate actions of the companies in it.
Base Date-
The base period for the CNX Nifty index is November 3,
1995.The base value of the index has been set at 1000, and a base capital of Rs
2.06 trillion.
The CNX Nifty is computed in real- time, it takes into
account only the stock price movements. However, the price indices do
not consider the return from dividend payments of index constituent stocks.
Investible Weight Factors (IWFs) - is a unit of
floating stock expressed in terms of a number of shares available for
trading and which is not held by the entities having strategic interest in
a company. Higher IWF suggest greater number of shares held by the investors as
reported under public category within The following categories are excluded
from the free float factor where identifiable separately: a shareholding
pattern reported by each company.
· Shareholding
of promoter and promoter group.
· Government
holding in the capacity of strategic investor.
· Shares
held by promoters through ADR/GDRs.
· Strategic
stakes by corporate bodies.
· Investments
under FDI category.
· Equity
held by associate/group companies (cross-holdings).
· Employee
Welfare Trusts.
· Shares
under lock-in category
Say total Shares = x
And sum of shares under above mentioned categories = y.
IWF factor = (x-y)*100/x = z %.
Price Index Calculations Formula-
Market Capitalization = Equity Capital * Price
Free Float Market Capitalization = Equity Capital * Price *
IWF.
Index Value = Current Market Value / Base Market Capital *
Base Index Value (1000).
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