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INDIAN STOCK MARKET INDICES (NSE)

Before digging into the topic. Its important to mention that this is one of the most important piece of information that every trader and investor should know.

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A Common mistake of a retail market participant is that he tries to either look at ‘too much’ information or ‘no’ information at all.

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The key lies in looking at the available information smartly not thoroughly.

What exactly do i mean by that?

Well, imagine you are a cricket scout and your job is to find the best young players out there who have the potential to become stars of tomorrow. In a country with a population exceeding 130 crores and which has 29 states and 7 union territories. Where are you going to start your scouting from?
Its obvious that you won’t flip a coin to decide that. You will try to use the available information in the best way possible and list the states in an order of preference which according to you will most likely result in achieving your goal in the least time possible.

Say, you start looking at state junior tournament statistics and find out that Uttar Pradesh has outperformed others in last 5 years or may be Punjab has been improving their tournament position each year.

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By looking at this information you know –

  • Uttar Pradesh had strong players in junior teams in the last few years who might be almost ready to raise their level.
  • Punjab has been achieving better results year after year. This trend suggests Punjab could be like the UP team in next few years.

So you decide to start your scouting with these two states.

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Probability of you finding what you are looking for in the least time possible is much higher now.

Similarly,

If traders and investors start their ‘scouting’ with Market indices, the probability of them finding out what they are looking for in least time possible increases many-fold.

What is a Stock index?

It typically refers to a statistical measure of change in a securities market. In the case of financial markets stock and bond market indices consist of a hypothetical portfolio of securities representing a particular market or a segment of it which serve as a health indicator for a basket of securities and also as a benchmark for measuring the performance of the stocks or portfolios such as mutual fund investments.

(IN THIS ARTICLE OUR FOCUS IS ON NSE EQUITY INDICES ONLY)

TYPES OF EQUITY INDICES

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  1. BROAD BASED INDICESThese indices consist of the large, liquid stocks listed on the Exchange.
  • NIFTY50
  • NIFTY NEXT 50
  • NIFTY100
  • NIFTY200
  • NIFTY500
  • NIFTY MID CAP50
  • NIFTY MID CAP100
  • NIFTY MID CAP150
  • NIFTY SMALL CAP 50
  • NIFTY SMALL CAP 100
  • NIFTY SMALL CAP 250
  • NIFTY LARGE MID CAP 250
  • NIFTY MID SMALL CAP 400

2. SECTORAL INDICES:

These indices are linked to particular sectors.

  • NIFTY BANK
  • NIFTY AUTO
  • NIFTY IT
  • NIFTY PHARMA
  • NIFTY PRIVATE BANK
  • NIFTY PSU BANK
  • NIFTY FINANCIAL SERVICES
  • NIFTY FMCG
  • NIFTY MEDIA
  • NIFTY METAL
  • NIFTY REALTY

3. THEMATIC INDICES:
These reflect the performance of various broad investment themes which seek to identify specific social, economic, industrial, environmental or demographic trends and their long-term secular, cyclical and structural influences on the economy and markets.

  • NIFTY Aditya Birla group
  • NIFTY Commodities Index
  • NIFTY CPSE Index
  • NIFTY Energy Index
  • NIFTY India Consumption Index
  • NIFTY Infrastructure Index
  • NIFTY Mahindra Group
  • NIFTY Midcap Liquid 15 Index
  • NIFTY MNC Index
  • NIFTY PSE Index
  • NIFTY Services Sector Index
  • NIFTY Shariah 25 Index
  • NIFTY Tata group
  • NIFTY Tata group 25% Cap
  • NIFTY100 Liquid 15 Index
  • NIFTY50 Shariah Index
  • NIFTY500 Shariah Index
  • NIFTY SME EMERGE
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4. STRATEGY INDICES:

These are designed on the basis of quantitative models / investment strategies to provide a single value for the aggregate performance of a number of companies.

  • NIFTY100 Equal Weight Index
  • NIFTY100 Low Volatility 30 Index
  • NIFTY 50 Arbitrage Index
  • NIFTY 50 Futures PR
  • NIFTY 50 Futures TR
  • NIFTY Alpha 50 Index
  • NIFTY Dividend Opportunities 50 Index
  • NIFTY Growth Sectors 15 Index
  • NIFTY High Beta 50 Index
  • NIFTY Low Volatility 50 Index
  • NIFTY Alpha Low Volatility 30
  • NIFTY Quality Low Volatility 30
  • NIFTY Alpha Quality Low Volatility 30
  • NIFTY Alpha Quality Value Low Volatility 30
  • NIFTY100 QUALITY 30 Index
  • NIFTY50 Dividend Points Index
  • NIFTY50 Equal Weight
  • NIFTY50 PR 1x Inverse Index
  • NIFTY50 PR 2x Leverage Index
  • NIFTY50 TR 1x Inverse Index
  • NIFTY50 TR 2x Leverage Index
  • NIFTY50 USD Index
  • NIFTY50 Value 20 Index

For an average investor or trader the broad based indices and sectoral indices are important. The thematic and strategy indices are of use to professional fund managers more.

It does not matter if you are a day trader or a long term investor knowledge about the broad based indices and sectoral indices is something you cannot afford to not have.

young woman thinking with pen while working studying at her desk

As a day trader, instead of choosing stocks on basis of what an expert is saying on TV, if you spend 15 minutes in looking at what these indices are doing, you are more likely to find what you are looking for. To be honest, this is the best way of selecting stocks to trade known to me. (The stock selection aspect will be discussed in another article some day)

As an investor, you can schedule periodic checks on sectoral indices and find out if you should modify your investments. ‘Is there a sector boom you are missing out on? Are you invested in sectors which are under-performing in this bull market?’ are questions you can find answers to.

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LOOKING AT THE BIGGER PICTURE REDUCES THE NUMBER OF BLUNDERS YOU COMMIT IN LIFE.


SOME INDICES IN DETAIL

  • 4 broad based indices (NIFTY50, NIFTY100, NIFTYNEXT50, NIFTY500)
  • 2 Sectoral indices (NIFTY PHARMA, NIFTY BANK)

NIFTY50

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  • The NIFTY 50 is a well diversified 50 stock index and it represent important sectors of the economy.
  • The base period selected for NIFTY 50 index is the close of prices on November 3, 1995, which marks 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.
  • The NIFTY 50 Index represents about 65% of the free float market capitalization of the stocks listed on NSE as on March 31, 2016.
  • Effective June 26, 2009, NIFTY 50 is computed using Free Float Market Capitalization weighted method, wherein the level of index reflects the free float market capitalization of all stocks in Index.

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NIFTY100

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  • NIFTY 100 represents top 100 companies based on full market capitalisation from NIFTY 500. This index intends to measure the performance of large market capitalization companies. The NIFTY 100 tracks the behavior of combined portfolio of two indices viz. NIFTY 50 and NIFTY Next 50.
  • The NIFTY 100 Index represents about 77% of the free float market capitalization of the stocks listed on NSE as on March 31, 2016.
  • The total traded value for the last six months ending March 2016 of all index constituents is approximately 61% of the traded value of all stocks on the NSE.

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NIFTYNEXT50

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  • The NIFTY Next 50 Index represents 50 companies from NIFTY 100 after excluding the NIFTY 50 companies.
  • The NIFTY Next 50 Index represents about 12% of the free float market capitalization of the stocks listed on NSE as on March 31, 2016.
  • NIFTY Next 50 was introduced on January 1, 1997, with base date and base value being November 03, 1996 and 1000 respectively and a base capital of `0.43 trillion.
  • The total traded value for the last six months March 2016 of all index constituents is approximately 13% of the traded value of all stocks on NSE..
  • Effective May 04, 2009, NIFTY Next 50 is computed using Free Float Market Capitalization weighted method, wherein the level of index reflects the free float market capitalization of all stocks in Index.
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NIFTY500

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  • The NIFTY 500 represents the top 500 companies based on full market capitalization and average daily turnover from the eligible universe.
  • It represents about 94% of the free float market capitalization of the stocks listed on NSE as on March 31, 2016.
  • The total traded value for the last six months ending March 2016, of all Index constituents is approximately 87% of the traded value of all stocks on NSE.

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NIFTYPHARMA

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  • NIFTY Pharma Index captures the performance of the pharmaceutical sector. The Index comprises of 10 companies listed on National Stock Exchange of India (NSE).
  • NIFTY Pharma Index is computed using free float market capitalization method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to particular base market capitalization value. NIFTY Pharma Index can be used for a variety of purposes such as bench-marking fund portfolios, launching of index funds, ETFs and structured products.
Eligibility Criteria for Selection of Constituent Stocks:
  • Companies must rank within top 800 based on both average daily turnover and average daily full market capitalization for the last six months.
  • Companies should form a part of pharmaceutical sector.
  • The company’s trading frequency should be at least 90% in the last six months.
  • The company should have a listing history of 6 months. A company, which comes out with an IPO will be eligible for inclusion in the index, if it fulfills the normal eligibility criteria for the index for a 3 month period instead of a 6 month period.
  • Final selection of 10 companies shall be done based on the free-float market capitalization of the companies.
Index Re-Balancing:
Index is re-balanced on semi-annual basis. The cut-off date is January 31 and July 31 of each year, i.e. For semi-annual review of
indices, average data for six months ending the cut-off date is considered. Four weeks prior notice is given to market from the date of
change.
Index Governance:
A professional team at IISL manages NIFTY Pharma Index. There is a three-tier governance structure comprising the Board of
Directors of IISL, the Index Policy Committee and the Index Maintenance Sub-Committee.
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NIFTYBANK

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  • The NIFTY Bank Index comprises of the most liquid and large Indian Banking stocks. It provides investors and market intermediaries a benchmark that captures the capital market performance of the Indian banks. The Index has 12 stocks from the banking sector which trade on the National Stock Exchange of India Ltd.(NSE).
  • NIFTY Bank Index is computed using free float market capitalization method.
  • NIFTY Bank Index can be used for a variety of purposes such as bench-marking fund portfolios, launching of index funds, ETFs and structured products
Eligibility Criteria for Selection of Constituent Stocks:
  • Companies must rank within top 800 based on both average daily turnover and average daily full market capitalization for the last six months.
  • Companies should form a part of the Banking sector.
  • The company’s trading frequency should be at least 90% in the last six months.
  • The company should have a listing history of 6 months. A company which comes out with an IPO will be eligible for inclusion in the index, if it fulfills the normal eligibility criteria for the index for a 3 month period instead of a 6 month period.
  • Companies that are allowed to trade in F&O segment are only eligible to be constituent of the index.
  • Final selection of 12 companies shall be done based on the free-float market capitalization of the companies.
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Index Re-Balancing:
Index is re-balanced on semi-annual basis. The cut-off date is January 31 and July 31 of each year, i.e. For semi-annual review of
indices, average data for six months ending the cut-off date is considered. Four weeks prior notice is given to market from the date of
change.
Index Governance:
A professional team at IISL manages NIFTY Bank Index. There is a three-tier governance structure comprising the Board of Directors
of IISL, the Index Policy Committee and the Index Maintenance Sub-Committee.
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CONCLUSION

If you have been ignoring this valuable piece of information provided to us (the public), start paying attention and read about it from this minute. Your results will improve significantly just by starting your analysis with the bigger picture in your mind. Some valuable information in the article was taken from niftyindices.com I encourage my readers to visit the site and study atleast 40% of the indices mentioned in the article.

Thank you for reading.
By
Animesh Vashisht
Mob. +917906818121, +91-7536807363

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