Major Indices in India

There are two major indices in India: BSE Sensex and NSE Nifty. The BSE Sensitive index of equity share prices was launched in 1986. It compromises 30 shares and its base year is 1978-79.The major criterion for selection of a scrip in the Sensex is large capitalization. Besides this criterion other criteria like number of trades, average value of shares traded per day as a percentage of total number of outstanding shares, are considered for inclusion in the Sensex. The scrip selection is also based on balanced representation of industry leadership position in the industry, continuous dividend paying record, and track record of promoter. Since its beginning in 1986, it was revised for the first time on the 50th independent Day, August 15, 1997 by replacing 15 scrips. During this revamp the scrips of banks, financial institutions with a wieghtage of 14.6 per cent were included on the index for the first time. It was revised again in October 1998 for replacing some old economy stocks such as Arvind Mills, Great Eastern Shipping, Steel Authority of India, and IPCL with some new economy stocks such as infosys, NIIT, Castrol and Novartis. The recent revamp was on March 11, 2000 which came into effect on April 10. Certain scrips such as India Hotels, IDBI, Tata Chemicals, and Tata Power were replaced by Satyam Computers, Zee Telefilms, Dr Reddy’s Laboratories and Reliance Petroleum. The new economy sticks have now percent weightage in the index. The BSE Sensex was revised again on January 7, 2002, when the motorcycle major Hero Honda displaced Mahindra and Mahindra and HCL Technologies displaced NIIT.

Today, only 11 of the original club remain, the others have been supplanted by companies whose scrips are far more indicative of the happening in the Market.

The new economy scrip having largest market capitalization is Infosys, with a weightage of 16.85 percent in index market capitalization, followed by Hindustan Lever with 14.5 per cent and Reliance with 12 per cent. The BSE Sensex represents 44 per cent of the BSE a market capitalization and 14 most important listed and traded sectors. The BSE scrip as on average account or 52 percent of the trading volumes on daily basis and 35 per cent of total trades executed on the exchange. The BSE Sensex does not include Wipro, which is among the top three most valuable companies in the Indian Market as Wipro’s trading volumes are much lower.

Another index which has become very popular in a short span of time is the S&P CNX NIFTY. The National Stock Exchange began equity trading in November 1994,and its volumes surpassed that of BSE in a very short span of time. NSE and CRISIL undertook a joint venture, wherein they jointly promoted Indian Index Services and products as specialized organizations to provide stock index services. This organization scientifically devised indices of stock prices in NSE in technical partnership with Standard and Poor (S&P). NSE introduced this index to reflect the market movements more accurately, provide fund managers with a benchmark or measuring portfolio performance and develop a reference rate for introducing index-based derivative products. The S&P CNX Nifty lunched in July 8, 1996, comprises 50 scrips which area selected on the basis of low impact cost, high liquidity and market capitalizations. The impact cost is the percentage marking from the (bid + ask) /2 suffered in executing a transaction. Lower the impact cost, higher the liquidity of a stock and vice versa. Suppose a scrip trades at a bid price of Rs 99 and an ask price of Rs 101 the ideal price is Rs 100. If a buy order for 1,000 shares goes through at Rs 102, then the market impact cost is 2%. If a buy order or 2000 shares goes through at Rs 104 then the market impact cost at 2,000 shares is 4%. For stock to be included in the S&P CNX Nifty it must trade in the total portfolio of Rs 2 crore at an impact cost than 1.5 percent on 85 percent of the tidings days. Nifty represents about 44 percent of the total market capitalization on NSE. The S&P CNX Nifty is a widely used indicator. Six index funds an index futures and options launched at NSE are based on S&P CNX Nifty.