There are two national stock exchanges in the country, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Most large brokers hold membership cards in both exchanges, offering investors a choice of placing their trades on either bourse.
National Stock Exchange of India Limited (NSE)
The NSE was set up in 1992 by leading financial institutions (IDBI, LIC, UTI, ICICI, SBI and others) and was the first one to offer screen based trading all over India. Though the impetus for its establishment came from policy makers in the country, it has been set up as a public limited company.
NSE is different from most other stock exchanges in India where membership on an exchange also meant ownership of the exchange. At the NSE, the ownership and management of the exchange are completely separate.
Governing body
|
A board of directors manages the exchange. The board delegates decisions relating to market operations to an executive committee, which includes representatives from the exchange’s trading members, the public and the management. |
|
Besides, the exchange operates various committees to advise it on areas such as good market practices, settlement procedures, risk containment systems etc. Industry professionals, trading members and exchange staff man these committees. The day-to-day management of the exchange is delegated to the managing director who is supported by a team of professional staff. |
Membership
There are 789 members (as of Feb 28 ’07) who can trade on both the capital market and derivatives segments. There are 150 members who can trade only on the capital market segment. There are 47 members who can trade on the capital market, wholesale debt market (WDM) and derivatives’ segments. There are 9 members who can trade on WDM and capital market segments, and 7 who can trade only on WDM. In all, there are 1002 members.
Number of listed companies
|
On the capital market segment, 1,462 companies are available for trading. |
|
On the wholesale debt market segment, 3,216 securities are available for trading. Capital market operations data |
|
The turnover on the NSE has increased from Rs 1,805 crore in 1994-95 to Rs 15.69 lakh crore in 2005-06. |
|
The average daily traded volume has increased from Rs 17 crore during 1994-95 to Rs 6,253 crore during 2005-06. |
|
The total market capitalization has increased from Rs 363,350 crore as of end March 1995 to Rs 28.13 lakh crore as of end March 2006. |
|
Number of shares traded has increased from 0.007 billion in November 1994 to 8.57 billion in March’06. |
|
The average daily turnover in the derivatives segment was Rs 37,000 crore in Feb’07. |
Classification of Listed Securities
On NSE, securities for account period settlement are classified as ‘EQ’ segment or ‘Normal’ segment. For book entry i.e. rolling settlement, the securities are traded in two separate segments known as ‘AE Segment’ and ‘BE Segment’. In case of AE segment, dematerialised securities are traded only in market lots, whereas in BE segment these can be traded in multiples of one share.
NSE Indices
The popular indices of NSE are :
|
S&P CNX NIFTY |
|
S&P CNX DEFTY |
|
S&P CNX 500 |
|
S&P CNX NIFTY JUNIOR |
|
CNX MIDCAP |
|
CNX Industry Indices |
|
CNX Segment Indices |
Method of Computation of Indices
|
S&P CNX Nifty S&P CNX Nifty comprises 50 stocks and is a market capitalization weighted index. Stocks are selected based on their market capitalization and liquidity. An important criteria of S&P CNX Nifty is that the impact cost (cost of executing the entire set of S&P CNX Nifty securities) is low, making it an optimal index for derivatives trading. The S&P CNX Nifty represents about 58% the total market capitalization of the stocks listed on the Indian bourses as of Dec 29, 2006. The Impact cost (explained in latter part of the article) of S&P for a portfolio of Rs 5 million is 0.08 per cent. |
||||||
|
S&P CNX Defty Defty is a dollar denominated index based on the S&P CNX Nifty. Computations are done using the S&P CNX Nifty index calculated on the NEAT trading system of NSE and USD Rupee exchange rate that is based on the real time polled data feed |
||||||
|
CNX Nifty Junior CNX Nifty Junior comprises 50 stocks and is a market capitalization weighted Index. The next rung of liquid securities after the Nifty are included in the Junior Index. The Impact cost for CNX Junior Portfolio size of Rs 2.50 million is 0.14% per cent. The CNX Nifty Junior represents about 10% per cent of total market capitalization of all equity shares as on Sep 29’06. |
||||||
|
S&P CNX 500 Equity Index The S&P CNX 500 Equity Index comprises 500 stocks and is market capitalization weighted. Stocks are selected based on their market capitalization, industry representation, trading interest and financial performance. However, the overriding need has been to ensure that the industry weightings in the index dynamically reflect the industry weightings in the market. The S&P CNX~500 Equity Index currently contains 72 industry groups (S&P CNX Industry Indices) representing over 90 per cent of total market capitalization and about 86% per cent of total turnover making it an optimal market benchmark. |
||||||
|
S&P CNX Industry Indices The S&P CNX industry indices serve as a standard for comparison of the stock market performance of individual companies vis-a-vis their respective peer groups and also enable fund managers to benchmark NAV performance vs. specific industries. |
||||||
|
CNX Mid Cap CNX Midcap is computed using market capitalisation weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value. The constituents and the criteria for the selection judge the effectiveness of the index. Selection of the index set is based on the following criteria :
|
||||||
|
CNX Segment Indices The reform process in India has resulted in business restructuring and consolidation of the Indian corporate sector. With a view to providing investors with a better perspective of the stock market performance of the various segments of the Indian corporate sector, NSE has constructed various segment Indices such as the CNX MNC (Multinational Corporations) Index, CNX PSE (Public Sector Enterprises) Index and the CNX IBG (Indian Business Groups) Index. These indices aid investors in their asset allocation and segmental exposure decisions. |
||||||
|
CNX Customized Indices Customized indices can be used for tracking the performance of the clients portfolio of stocks vis-a-vis objectively defined benchmarks or for benchmarking funds’ NAV performance to customized indices. |
Method of Computation of Indices
The CNX Indices are computed using a market capitalization weighted method wherein the level of the Index reflects the total market value of all the stocks in the index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value.
Index Maintenance
The Index Maintenance Sub-committee of NSE ensures that the guidelines for index maintenance are adhered to, for example: –
|
Monitoring and completing divisor adjustments in a timely manner on account of corporate actions like share changes, stock splits, mergers/amalgamations, etc |
|
Monitoring and updating the indices database dynamically |
|
Index Review according to laid down criteria |
Adjustments for corporate actions are carried out in a timely manner to ensure that the value of the index is not affected by the corporate action, and remains comparable over a period of time. Each index has a replacement pool comprising companies that meet all criteria for candidacy to that index. All replacements of companies in the index take place from this pool. The replacement pool is monitored continuously and at all times includes only those companies that meet the selection criteria.
S&P CNX Nifty
It is the most popular index, which represents about 58% of the total market capitalization of NSE.
The salient features of the S&P CNX Nifty are :
|
Companies eligible for inclusion in Nifty must have a six monthly average market capitalisation of Rs.500 crore or more during the last six months. |
|
Companies eligible for inclusion in S&P CNX Nifty should have at least 12% floating stock. For this purpose, floating stock shall mean stocks which are not held by the promoters and associated entities (where identifiable) of such companies. |
|
Liquidity; all selected stocks should be below a certain impact cost, which is defined in the next paragraph. The security should have traded at an average impact cost of 0.75% or less during the last six months for 90% of the observations (instead of the earlier criteria of 1.5% or less during the last one year for 85% of the observations). |
Impact Cost Definition – The cost of executing a transaction in a security in proportion to the weight of its market capitalization against the index market capitalization at any point of time.
Impact Cost Calculation – This is the percentage mark up suffered while buying or selling the desired quantity of a security compared to its ideal price
(best buy + best sell) / 2, e.g.
Bids and Offer at a particular time
|
Buy (Qty.) |
Buy (Price) |
Sell (Qty.) |
Sell (Price) |
|
1000 |
98 |
1000 |
99 |
|
2000 |
97 |
1500 |
100 |
|
1000 |
96 |
1000 |
101 |
To Buy 1500 Shares IDEAL PRICE = (99 + 98)/2 = 98.5
ACTUAL BUY PRICE = (1000 X 99 + 500 X 100)/1500 = 99.33
(FOR 1500 SHARES) IMPACT COST = (99.33 – 98.5)/98.5 X 100 = 0.84%
Base Date and Value
The base period selected for S&P CNX Nifty 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 1,000 and a base capital of Rs. 2.06 trillion.