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Meaning
Stock market indices are the barometers of the stock market. They mirror the stock market behaviour. With some 7000 companies listed on BSE, it is not possible to look at the prices of every stock to find out whether the market movement is upward or downward. The indices gives a broad outline of the market movement and represent the market Some of the market Indices are: Sensex, NIFTY, BSE-200, CRISIL-500
PARAMETERS
Liquidity of the stock Generally the highly liquid stocks are considered for including in the index. The impact cost of the stock is the determining factor for the liquidity of the stock. Diversification of sectors While constructing the index and selecting the stocks for making the index it is maintained that the index has a balanced representation of all the sectors from the listed companies. Optimum Size of the index More number of stocks in the stock index surely reduces the level of risk for the investors. But beyond a point increasing the number of stocks in the index hardly has any effect on the index
Contd.
Market capitalization of the stocks Generally for constructing the index the stocks with large market capitalization are selected. Large companies that are listed in that stock exchange are considered for making the index. Averaging of the stocks the price of the stock and the position of the index is influenced either by the price of the company or the condition of the economy of the country.
The company should have an investable weight factor (IWF) of at least 10%. 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 12 companies shall be done based on the free-float market capitalization of the companies.
METHODOLOGY
CNX Bank Index is computed using free float market capitalization method with base date of Jan 1, 2000 indexed to base value of 1000, wherein the level of the index reflects total free float market value of all the stocks in the index relative to a particular base market capitalization value. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, new issue of shares etc. without affecting the index.
Market Representation
The CNX Bank Index represent about 13.51% of the free float market capitalization of the stocks listed on NSE and 89.79% of the free float market capitalization of the stocks forming part of the Banking sector universe as on September 30, 2013.
The total traded value for the last six months ending September 2013 of all the Index constituents is approximately 18.91% of the traded value of all stocks on the NSE and 89.02% of the traded value of the stocks forming part of the Banking sector universe.
INDEX RE-BALANCING Index is rebalanced on semi-annual basis. The cut-off date is January 31of each year i.e. for semi-annual review of indices ,average data for 6monthsending the cut-off data is considered. Six weeks prior notice is given to market from the date of change. INDEX GOVERNANCE A professional team at IISL manages CNX 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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