Page 28 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 1: Introduction to Capital Market

2. They can be used as a standard against which to compare the performance of an equity Notes
fund.
3. It is a lead indicator of the performance of the overall economy or a sector of the economy

4. Stock indexes reflect highly up to date information
5. Modern financial applications such as Index Funds, Index Futures, Index Options play an
important role in financial investments and risk management

Why are indexes important?

If you invest in mutual funds or individual stocks then it’s important to measure the performance
of your investments against a relevant market index. If your investments consistently lag behind
the index then it might be time to come up with a new investing strategy.
BSE: Bombay Stock Exchange is the oldest stock exchange in Asia What is now popularly known
as the BSE was established as “The Native Share & Stock Brokers’ Association” in 1875. Over the
past 135 years, BSE has facilitated the growth of the Indian corporate sector by providing it with
an efficient capital raising platform. Today, BSE is the world’s number 1 exchange in the world
in terms of the number of listed companies (over 4900). It is the world’s 5th most active in terms
of number of transactions handled through its electronic trading system. And it is in the top ten
of global exchanges in terms of the market capitalization of its listed companies (as of December
31, 2009). The companies listed on BSE command a total market capitalization of USD Trillion
1.28 as of Feb, 2010. BSE is the first exchange in India and the second in the world to obtain an ISO
9001:2000 certifications. It is also the first Exchange in the country and second in the world to
receive Information Security Management System Standard BS 7799-2-2002 certification for its
BSE On-Line trading System (BOLT). Presently, we are ISO 27001:2005 certified, which is a ISO
version of BS 7799 for Information Security. The BSE Index, SENSEX, is India’s first and most
popular Stock Market benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on
BSE and in Hong Kong. Futures and options on the index are also traded at BSE.
The launch of SENSEX in 1986 was later followed up in January 1989 by introduction of BSE
National Index (Base: 1983-84 = 100). It comprised 100 stocks listed at five major stock exchanges
in India - Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE National Index was renamed
BSE-100 Index from October 14, 1996 and since then, it is being calculated taking into consideration
only the prices of stocks listed at BSE. BSE launched the dollar-linked version of BSE-100 index
on May 22, 2006.
CNX: The medium capitalized segment of the stock market is being increasingly perceived as an
attractive investment segment with high growth potential. The primary objective of the CNX
Madcap Index is to capture the movement and be a benchmark of the madcap segment of the
market. CNX Madcap is computed using free float market capitalization* weighted method
w.e.f. February 26, 2010, wherein the level of the index reflects the free float 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 CNX Madcap Index has a base date of Jan 1, 2003 and
a base value of 1000.
S&P CNX Nifty: S&P CNX Nifty is a well diversified 50 stock index accounting for 23 sectors of
the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index
based derivatives and index funds.
S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is
a joint venture between NSE and CRISIL. IISL is India’s first specialised company focused upon
the index as a core product. IISL has Marketing and licensing agreement with standard & poor’s
(S&P), who world leaders are in index services.
Note: NIFTY consists of 50 top stocks from different sectors of NSE.

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