 |
|
||||||||||||||||
|
|
FREQUENTLY ASKED QUESTIONS |
What should a stock market index be?
Isn't averaging like diversification; cancelling out vulnerability to one stock?
What is wrong with the price information for illiquid stocks?
How does the S&P CNX Nifty work?
Why does the index keep changing from time to time?
How is the S&P CNX Nifty closing price calculated?
What index should be used for index funds?
What about index futures?
How does S&P CNX Nifty and the `BSE sensitive index' compare?
How did the S&P CNX Nifty come about?
What's S&P CNX Defty?
What should a stock market index be?
A stock market index should capture the behaviour of the overall equity market. Movements of the index should represent the returns obtained by "typical" portfolios in the country.
What do the ups and downs of an index mean?
They reflect the changing expectations of the stock market
about future dividends of India's corporate sector. When the index goes up, it is because
the stock market thinks that the prospective dividends in the future will be better than
previously thought. When prospects of dividends in the future become pessimistic, the
index drops. The ideal index gives us instant-to-instant readings about how the stock
market perceives the future of India's corporate sector.
What is the basic idea in an index?
Every stock price moves for two possible reasons: news about the company (e.g. a product launch, or the closure of a factory, etc.) or news about the country (e.g. nuclear bombs, or a budget announcement, etc.). The job of an index is to purely capture the second part, the movements of the stock market as a whole (i.e. news about the country).
This is achieved by averaging. Each stock contains a mixture of these two elements - stock news and index news. When we take an average of returns on many stocks, the individual stock news tends to cancel out. On any one day, there would be good stock-specific news for a few companies and bad stock-specific news for others. In a good index, these will cancel out, and the only thing left will be news that is common to all stocks. That is what the index will capture.
What kind of averaging is done?
For technical reasons, it turns out that the correct method of averaging is to take a weighted average, and give each stock a weight proportional to its market capitalisation.
What is the portfolio interpretation of index movements?
It is easy to create a portfolio which will reliably get the same returns as the index. i.e. if the index goes up by 4%, this portfolio will also go up by 4%.
Suppose an index is made of two stocks , one with a market cap of Rs.1000 crore and another with a market cap of Rs.3000 crore. Then the index portfolio will assign a weight of 25% to the first and 75% weight to the second.
If we form a portfolio of the two stocks, with a weight of 25% on the first and 75% on the second, then the portfolio returns will equal the index returns. So if you want to buy Rs.1 lakh of this two-stock index, you would buy Rs.25,000 of the first and Rs.75,000 of the second; this portfolio would exactly mimic the two-stock index.
A stock market index is hence just like other prices indexes in showing what is happening on the overall indexes -- the wholesale price index is a comparable example. In addition, the stock market index is attainable as a portfolio.
Why are indexes important?
Traditionally, indexes have been used as information sources. By looking at an index we know how the market is faring. This information aspect also figures in myriad applications of stock market indexes in economic research. This is particularly valuable when an index reflects highly uptodate information (a central issue which is discussed in detail ahead) and the portfolio of an investor contains illiquid securities - in this case, the index is a lead indicator of how the overall portfolio will fare.
In recent years, indexes have come to the fore owing to direct applications in finance, in the form of index funds and index derivatives. Index funds are funds which passively `invest in the index'. Index derivatives allow people to cheaply alter their risk exposure to an index (this is called hedging) and to implement forecasts about index movements (this is called speculation). Hedging using index derivatives has become a central part of risk management in the modern economy. These applications are now a multi-trillion dollar industry worldwide, and they are critically linked up to market indexes.
Finally, indexes serve as a benchmark for measuring the performance of fund managers. An all-equity fund should obtain returns like the overall stock market index. A 50:50 debt:equity fund should obtain returns close to those obtained by an investment of 50% in the index and 50% in fixed income. A well-specified relationship between an investor and a fund manager should explicitly define the benchmark against which the fund manager will be compared, and in what fashion.
What kinds of indexes exist?
The most important type of market index is the broad-market index. In most countries, a single major index dominates benchmarking, index funds, index derivatives and research applications. In addition, more specialised indexes often find interesting applications. In India, we have seen situations where a dedicated industry fund uses an industry index as a benchmark. In India, where clear categories of ownership groups exist, it becomes interesting to examine the performance of classes of companies sorted by ownership group.
Isn't averaging like diversification; cancelling out vulnerability to one stock?
Yes, the averaging that takes place in an index is equivalent to diversification. Diversification cancels out individual stock fluctuations. From an investment perspective, diversification reduces risk. From an information perspective, diversification cancels out stock noise; the only thing left after good diversification is the common factor -- news such as nuclear bombs -- which hits all stocks and cannot possibly be removed by diversification.
Then a larger number of stocks in an index will give more diversification -- isn't that a good thing? Why don't we put all the stocks of the country into the index?
It is, indeed, the case that putting more stocks into an index yields more diversification. However, two things go wrong when we do this too much:
What is wrong with the price information for illiquid stocks?
There are three problems: `stale prices', `bid-ask bounce' and vulnerability to manipulation. Through these problems, an index is actually worsened when illiquid stocks are put into it.
A stock may be liquid on one exchange and illiquid on another -- what price do you take when calculating the index?
Illiquid stocks yield bad price data; so the best quality data will come from the most liquid exchange. In India, that is NSE. The S&P CNX Nifty uses price data from NSE for calculations.
What is `stale prices'?
Suppose we look at the closing price of an index. It is supposed to reflect the state of the stock market at 3:50 PM on NSE. Suppose an illiquid stock is in the index. The last traded price (LTP) of the stock might be an hour, or a day, or a week old!
The index is supposed to show how the stock market perceives the future of the corporate sector at 3:50 PM. When an illiquid stock injects these `stale prices' into the calculation of an index, it makes the index more stale. It reduces the accuracy with which the index reflects information.
What is `bid-ask bounce'?
Suppose a stock trades at bid 1440 ask 1490. Suppose no news appears for ten minutes. But, over this period, suppose that a buy order first comes in (at Rs.1490) followed by a sell order (at Rs. 1440). This sequence of events makes it seem that the stock price has dropped by Rs.50. This is a totally spurious price movement!
Even when no news is breaking, when a stock price is not changing, the `bid-ask bounce' is about prices bouncing up and down between bid and ask. These changes are spurious. This problem is the greatest with illiquid stocks where the bid-ask spread is wide. When an index component shows such price changes it contaminates the index.
What about market manipulation - how would manipulation of an index take place, and how would an index be made less vulnerable to manipulation?
The index is a large entity and is intrinsically harder to manipulate when compared with individual stocks. Obviously, larger indexes are harder to manipulate than smaller indexes. The weak links in an index are the large, illiquid stocks. These are the achilles heel where a manipulator obtains maximum impact upon the index at minimum cost. Optimal index manipulation consists of attacking these stocks. This is one more reason why illiquid stocks should be excluded from a market index; indeed this aspect requires that the liquidity of a stock in an index should be proportional to its market capitalisation.
So diversification yields diminishing returns, and illiquid stocks are best kept
out of an index.... what is the ideal middle road?
S&P CNX Nifty.
How does the S&P CNX Nifty work?
S&P CNX Nifty is based upon solid economic research. A trillion calculations were expended to evolve the rules inside the S&P CNX Nifty index. The results of this work are remarkably simple: (a) the correct size to use is 50, (b) stocks considered for the S&P CNX Nifty must be liquid by the `impact cost' criterion, (c) the largest 50 stocks that meet the criterion go into the index.
S&P CNX Nifty is a contrast to the adhoc methods that have gone into index construction in the preceding years, where indexes were made out of intuition and lacked a scientific basis. The research that led up to S&P CNX Nifty is well-respected internationally as a pioneering effort in better understanding how to make a stock market index.
What is `impact cost'?
Suppose a stock trades at bid 99 and ask 101. We say the "ideal" price is Rs. 100. Now, suppose a buy order for 1000 shares goes through at Rs.102. Then we say the market impact cost at 1000 shares is 2%. If a buy order for 2000 shares goes through at Rs.104, we say the market impact cost at 2000 shares is 4%.
Market impact cost is the best measure of the liquidity of a stock. It accurately reflects the costs faced when actually trading an index. For a stock to qualify for possible inclusion into the S&P CNX Nifty, it has to reliably have market impact cost of below 1.5% when doing S&P CNX Nifty trades of half a crore rupees.
What do you mean by `an S&P CNX Nifty trade'?
Earlier, we said that the index assigns weightages to index components, and the weight of a stock is proportional to its market capitalisation. This idea can be applied to buying the S&P CNX Nifty. If you buy all 50 stocks in the S&P CNX Nifty, in correct proportions, that would be called "an index trade".
But what about the minimum market lot?
Each purchase would have to be rounded off to the nearest round lot. You can't buy 74 shares of Reliance; you have to choose either 50 or 100.
For example, on 26 October 1998, the weightage of Reliance in S&P CNX Nifty was 5.91%. This means that buying Rs.5 million of S&P CNX Nifty involves buying Rs.2,95,500 of Reliance. The price of Reliance was Rs.115.25 so we would need 2564 shares of Reliance. However, the market lot of Reliance is 50, so 2564 is rounded off to 2550.
So how much money is required to meaningfully "buy S&P CNX Nifty", after rounding off to market lots?
If you bought Rs.3 million of the S&P CNX Nifty, with rounding off to the nearest market lot, then the portfolio would have a 99.99% correlation with the true S&P CNX Nifty. Larger trade sizes would have an even higher correlation, and smaller trade sizes would have a lower correlation. This number (99.99) is adequate for even the most risk averse people; a trade size of Rs.3 million all but eliminates `tracking error' between the portfolio being traded and the true S&P CNX Nifty.
What's the impact cost on Rs.3 million of the full S&P CNX Nifty?
It is safe to think that the impact cost is 0.2% or so. This means that if S&P CNX Nifty is at 1000, a buy order goes through at 1002 and a sell order gets 998. NSE's NEAT software has special facilities to enable buying or selling the entire the S&P CNX Nifty at one shot.
The impact cost is not something fixed. It changes, depending upon the liquidity of the market. Indeed, the time-series of the S&P CNX Nifty impact cost is one of the best measures of changes in market liquidity over the years.
Why does the index keep changing from time to time?
Think of a liquid stock as a good thermometer, one which gives accurate data about the true price of the stock, because it trades actively with a tight spread. The prices observed for an illiquid stock are like readings from a low quality thermometer, which reports noisy data about the phenomenon of interest (the true price of the security).
We try to find the fifty best thermometers in the country and average their values to make the S&P CNX Nifty. As time passes, better thermometers become available (in the form of large, liquid stocks that are not in the S&P CNX Nifty). We would like that S&P CNX Nifty always uses the best thermometers possible. So we remove the weakest thermometer from inside the S&P CNX Nifty and accept the new stock into it.
The world changes, so the index should change. Yet, the change should not be sudden - for that would disrupt the character of the index. In 1996, after a decade of near-silence, the BSE removed 15 out of 30 stocks in their `sensitive' index. This completely changed the character of the index - older data for this index is not comparable with new data. Such sudden changes should be avoided. They serve to illustrate the proverb those who make peaceful change difficult make violent change inevitable. S&P CNX Nifty believes in steady, peaceful changes.
S&P CNX Nifty uses clear, publicly documented rules for index revision. These rules are applied regularly, to obtain changes to the index set.
IDBI was once not listed; SBI was once illiquid; Infosys was once an obscure software startup. The world changes, and one by one, these stocks have come into the S&P CNX Nifty. Each change in the S&P CNX Nifty is small, so the continuity of the index is maintained. Yet, at all times, S&P CNX Nifty represents the 50 most important liquid stocks in the country, the best thermometers to build an index out of.
When a stock goes out and a new stock comes in, doesn't that make index levels non-comparable?
No. There are mathematical formulas which ensure that yesterday's value and today's are comparable, even if a change in composition takes place in-between. Think of an index as a portfolio. The composition of the portfolio changes, but it is still meaningful to keep measuring the overnight returns on the portfolio from day to day. These returns, cumulated up, are the index level.
Index revision sounds dangerous in terms of political pressures. Won't speculators try to push a stock they have purchased into S&P CNX Nifty? Or remove a stock from the index when they are shorting it?
Of course they will. Hence there are no speculators on the internal committee of IISL which manages the index revisions. Further, there are objective, publicly defined rules which determine when stocks come in and go out of the index. There isn't much room for personal judgement here.
How is the S&P CNX Nifty closing price calculated?
The best closing prices of the country are used for this - the NSE official closing prices. These, in turn, come from a "call auction" in the last ten minutes. The call auction yields a single, sharp price out of millions of shares of supply and demand.
What is special about the NSE closing price?
NSE has the best surveillance procedures in India, so the extent of market manipulation is minimum there. In NSE, the professional staff of the surveillance department has no positions on the market. This elimination of conflicts of interest generates a more honest focus upon eliminating market manipulation.
From the date November 18, 1998 onwards, the NSE `official closing price' was determined by a call auction, a remarkable market procedure where a single, sharply defined closing price arises out of supply and demand of millions of shares. Due to the liquidity and order flow from numerous market players manipulation of the closing price becomes very hard.
NSE is the most liquid exchange in India. Hence, the prices observed there are the most reliable. NSE has the highest trading intensity (reducing stale prices) and their bid-ask spreads are the tightest (reducing bid-ask bounce). This is assisted by the fact that the NSE tick size is Rs.0.05 for all stocks, which encourages tight bid-ask spreads.
What about dividends?
What is commonly reported as S&P CNX Nifty on TV and in the newspapers is actually the NSE-50 Price Index. It only reflects changes in prices. IISL also calculates something called the S&P CNX Nifty Total Returns (TR) index. This shows the returns on the index portfolio, inclusive of dividends. This is the appropriate benchmark for mutual funds, which do earn dividends.
Both S&P CNX Nifty and S&P CNX Nifty TR use a base of 3 November 1995 as 1000. On 8 October 1998, i.e. nearly three years later, S&P CNX Nifty was at 847.95 while S&P CNX Nifty TR was at 887.13. The difference in the two levels is the return obtained on reinvestment of dividends through the intervening period.
You say that buying a S&P CNX Nifty portfolio yields the same returns as percentage changes on the S&P CNX Nifty index. But the weights will have to keep on changing from day to day when market caps change?
No. The market-cap weighted index is "self weighting". I.e. when weights change because prices change, yesterday's index portfolio continues to be today's index portfolio. Hence a buy and hold strategy is all that is required to replicate index returns under normal circumstances. Note that someone who buys and holds a S&P CNX Nifty portfolio earns dividends, this should be compared with the S&P CNX Nifty TR index and not plain S&P CNX Nifty.
So when do weights in an index change?
When corporate actions take place, the market capitalisation changes and weights have to be adjusted. Rights issues, public issues and mergers all present such problems. Of course, when index set changes take place, the portfolio has to be adjusted and weights get modified. This requires elaborate, and consistently- applied policies. These policies have been the subject of great attention and care at IISL and are fully disclosed to the public.
What historical data for S&P CNX Nifty is available?
S&P CNX Nifty and S&P CNX Nifty-TR are available from 3 July 1990 onwards. The historical data is calculated in an intelligent way, i.e. the index set steadily evolves even through the older years. Many researchers have started applying the term "Indian Market Index" to a series obtained by pasting together the `BSE sensitive index' for the early four years (from 1986 till 1990) with the S&P CNX Nifty series for the eight years thereafter, giving a twelve year series. (Values of the `BSE sensitive index' before 1986 are contaminated by selection bias.)
Where do I get data for S&P CNX Nifty?
At http://www.nse.co.in you will find:
What index should be used for index funds?
From a mutual fund investors point of view, the reward-to-risk ratio is important. For Nifty it is 5.74 and for the `BSE sensitive index' it is 5.12; hence S&P CNX Nifty yields better rewards per unit risk.
From a mutual fund investors point of view, the fund manager should accurately replicate returns on the index. The liquidity filtering in S&P CNX Nifty and numerous operational details about index management, help ensure accurate tracking.
S&P CNX Nifty is calculated using NSE prices; this ensures that index fund managers can benefit from trading on NSE. If, hypothetically, an index fund used the `BSE sensitive index' -- which is calculated using BSE prices -- then that fund manager would not be able to harness the benefits of trading on NSE. He would be forced to use BSE, an illiquid market. That would further hurt his ability to accurately replicate the returns on the index.
When investors see that an index fund is unable to replicate the returns on an index, they would have dark fears and would abandon the product. S&P CNX Nifty is the best index in India in terms of the accuracy of tracking possible.
What's the risk/return tradeoff of investing in S&P CNX Nifty?
The long-run return on S&P CNX Nifty is 16.24% per annum. The long-run daily standard deviation is 1.93% per day. In recent times, i.e. over the last calendar year, the daily standard deviation was 1.84% per day. The long-run average correlation between S&P CNX Nifty and the S&P 500 is zero.
What index funds are available on S&P CNX
Nifty?
India Access Ltd., by UTI and SBC Warburg, launched November 1997. An offshore fund,
listed on the London Stock Exchange.
What about index futures?
NSE has been gearing up from 1995 onwards to start an index futures market. Trading in S&P CNX Nifty futures will soon commence here. With NSE's expertise, this futures market is expected to become reliable and liquid.
S&P CNX Nifty is uniquely equipped as an index for the index futures market owing to (a) low market impact cost and (b) high hedging effectiveness. The good diversification of S&P CNX Nifty will generate low initial margin requirements. Finally, S&P CNX Nifty is calculated using NSE prices, and NSE is the most liquid exchange in India, thus making it easier to do arbitrage for S&P CNX Nifty index futures.
What is hedging effectiveness?
Suppose you have some portfolio, and you use index futures for hedging. A good index is one which gives high hedging effectiveness, i.e. the index should correlate well with your portfolio -- whatever it may be. A good index would give a very high risk reduction when a portfolio owner short sells the index futures.
S&P CNX Nifty correlates better with all kinds of portfolios in India as compared with other indexes. This holds for all kinds of portfolios, not just those that contain index stocks.
What transaction size should be used when doing index arbitrage?
As mentioned above, by the time a S&P CNX Nifty portfolio is Rs.3 million, with rounding off to the nearest market lot, the correlation between the approximate portfolio and the true S&P CNX Nifty is 99.99%. This is adequate for any arbitrageur. Impact cost increases as transaction sizes are made larger; hence it does not make sense to use portfolios larger than Rs.3 million. An arbitrageur seeking to deploy Rs.6 million in arbitrge should do one trade of Rs.3 million, wait a few seconds, and then do a second trade of Rs.3 million. Thanks to the electronic trading system at NSE, these trades can be done swiftly and efficiently.
Why not form a small portfolio of the ten most liquid stocks, and work to ensure that the small portfolio is maximally correlated with the S&P CNX Nifty?
This can, indeed, be done. Is it worth doing? That depends upon the cost and benefit.
Calculating the weights, in the ten stocks with the lowest market impact cost, so that the correlation with S&P CNX Nifty is maximised, is not easy to do. (See Risk structure of Indian stocks by Dr. John Blin of APT for a calculation of a 10-stock portfolio which is maximally correlated with S&P CNX Nifty. This is found in the book The future of fund management in India, edited by Dr. Tushar Waghmare, Invest India - Tata McGraw Hill Series, 1997.)
The gains from such an activity are not large. S&P CNX Nifty is explicitly designed to make it convenient to trade complete index portfolios. This is in contrast with other markets, where indexes have arisen before index futures came about, and ways had to be found to trade them. For example, the S&P 500 index was there before index futures came about. When index futures started trading, arbitrageurs had to find ways to trade the index - trading 500 stocks on the floor-based New York Stock Exchange was highly cumbersome. This led to great creativity in finding 250-stock portfolios which correlate well with the S&P 500. In India, there is no need to undergo these kinds of problems. S&P CNX Nifty is the base of the index futures, and S&P CNX Nifty is designed to be convenient to trade directly.
Are all the stocks in the S&P CNX Nifty in the depository?
Presently, except for BHEL, all other stocks can be traded and settled in the dematerialised mode. Of the 50 stocks in the S&P CNX Nifty, institutions are required (by SEBI) to settle through NSDL for 49 stocks. As of today, 82% of the NSE settlement volume for Nifty stocks is done through NSDL.
How do S&P CNX Nifty and the `BSE sensitive index' compare?
Every technical reason favours the S&P CNX Nifty.
S&P CNX Nifty is a more diversified index, accurately reflecting overall market conditions. The BSE index is more vulnerable to movements of individual stocks. The reward-to-risk ratio of S&P CNX Nifty is higher (5.74 as compared with 5.12), making it a more attractive portfolio -- both indices offer similar returns, but S&P CNX Nifty costs less risk.
S&P CNX Nifty is a more liquid index. Trades on the S&P CNX Nifty suffer lower market impact cost.
Several important issues lead back to the fact that the S&P CNX Nifty is calculated using NSE prices while the `BSE sensitive index' is calculated using BSE prices.
S&P CNX Nifty is calculated from a more liquid market, which features the safety of novation at the clearing corporation. Users of the BSE index would be forced to trade on BSE, a less liquid exchange where there is settlement risk owing to the lack of novation and the lack of a clearing corporation.
S&P CNX Nifty has fully articulated and professionally implemented rules governing index revision, corporate actions, etc. These rules are carefully thought out, under Indian conditions, to dovetail with operational problems of index funds and index arbitrageurs. Many of the BSE procedures are adhoc and undocumented, and do not reflect an awareness of modern applications of an index.
S&P CNX Nifty is calculated using modern computer systems with great care about data accuracy.
S&P CNX Nifty is more likely to rapidly benefit from a liquid index futures market. (The BSE has long campaigned against the introduction of index futures in India.)
The hedging effectiveness for randomly selected portfolios in India is better using the S&P CNX Nifty.
S&P CNX Nifty is relatively free of manipulation, for three reasons: (a) the index levels are calculated from the more liquid exchange with better surveillance procedures (it is easier for a manipulator to move prices at BSE), (b) S&P CNX Nifty has a larger market capitalisation so the consequence (upon the index) of a given move in an individual stock price is smaller and (c) S&P CNX Nifty calculation intrinsically requires liquidity in proportion to market capitalisation, thus avoiding weak links which a manipulator can attack.
Users of the S&P CNX Nifty benefit from the research that is possible owing to the long time-series available: both S&P CNX Nifty and S&P CNX Nifty TR series are observed from July 1990 onwards. Owing to the large changes in the `BSE sensitive index' in 1996, the comparable series available is only two years old, and no TR index is available.
S&P CNX Nifty is backed by solid economic research and three most respected institutions: NSE, CRISIL and S&P.
But everywhere in the newspapers I keep seeing this `BSE sensitive index' - why is that?
It takes newspapers a while to understand what a good index is.
India is not unique in having this problem. In the US, the dominant index for index funds, index futures and performance evaluation is the S&P 500. Yet, newspapers continue to talk about the `Dow Jones' index. It takes a while to erase history in such matters.
How did the S&P CNX Nifty come about?
Equities trading at NSE began in November 1994. By late 1995, NSE became India's largest equity market and was looking for a market index to utilise this unique information source. NSE also wanted to have a vehicle for the futures and options market. NSE approached the economists Dr. Ajay Shah and Dr. Susan Thomas, then at CMIE (and now at IGIDR), to do research on methods in index construction. This work was funded by the USAID FIRE project and led to the S&P CNX Nifty. Some of their research is visible over the Internet at http://www.igidr.ac.in/~ajayshah
Where does IISL come in?
In 1998, NSE and CRISIL launched a joint venture named IISL to focus on index management. This pools the index development efforts of CRISIL and NSE into a coordinated whole, India's first specialised company focussed upon the index as a core product. Today, the S&P CNX Nifty is owned and operated by IISL.
Who is Standard & Poors, and why does their name appear with the S&P CNX Nifty?
S&P owns the most important index in the world, the
S&P 500 index, which is the foundation of the largest index funds and most liquid
index futures markets in the world.
When S&P came to India to look at market indexes, they focussed upon the S&P CNX
Nifty as opposed to alternative indexes. They now stand behind the S&P CNX Nifty, as
is evidenced by the name "S&P CNX Nifty" This is a unique occasion; S&P
has never endorsed a market index before.
What does 'CNX' in S&P CNX Nifty stand for?
CNX stands for CRISIL NSE Indices.
We sometimes hear the term `nifty fifty' used in the US to denote a certain set of growth stocks. Is there any connection?
No. It's purely coincidental. It was research that led to the choice of 50 stocks as the optimal size of an index in the Indian equity market. One day, a clever leap was made from NSE-50 to `S&P CNX Nifty'.
What's S&P CNX Defty?
S&P CNX Defty is S&P CNX Nifty, measured in dollars. If the S&P CNX Nifty rises by 2% it means that the Indian stock market rose by 2%, measured in rupees. If the S&P CNX Defty rises by 2%, it means that the Indian stock market rose by 2%, measured in dollars.
The S&P CNX Defty is calculated in realtime. Data for the S&P CNX Nifty and the dollar--rupee is absorbed in realtime, and used to calculate the S&P CNX Defty in realtime. Realtime currency data is obtained from Knight Ridder. When there is currency volatility, the S&P CNX Defty is an ideal device for a foreign investor to know where he stands, even intraday.
What's CNX Nifty Junior?
S&P CNX Nifty is the first rung of the largest, highly liquid stocks in India. CNX Nifty Junior is an index built out of the next 50 large, liquid stocks in India. It is not as liquid as the S&P CNX Nifty, which implies that the information in the S&P CNX Nifty Junior is not as noise-free as that of the S&P CNX Nifty.
It may be useful to think of the S&P CNX Nifty and the CNX Nifty Junior as making up the 100 most liquid stocks in India. S&P CNX Nifty is the front line blue-chips, large and highly liquid stocks. The CNX Nifty Junior is the second rung of growth stocks which are not as established as those in the S&P CNX Nifty. Stocks like Infosys and NIIT, which recently graduated into the S&P CNX Nifty, were in the CNX Nifty Junior for a long time prior to this. CNX Nifty Junior can be viewed as an incubator where young growth stocks are found. As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, so they are the most liquid of the stocks excluded from the S&P CNX Nifty. Buying and selling the entire CNX Nifty Junior as a portfolio is feasible.
The maintenance of the S&P CNX Nifty and the CNX Nifty Junior are synchronised so that the two indexes will always be disjoint sets; i.e. a stock will never appear in both indexes at the same time. Hence it is always meaningful to pool the S&P CNX Nifty and the CNX Nifty Junior into a composite 100 stock index or portfolio.
Home Media NewsPapers Television Radio Magazines Government Geography Maps States&UTs History Travel Art&Culture Art Dance Theatre Music Jewellery Festivals Astrology Business CreditCards Tax Career Banks StockExchange NSE BSE Entertainment Bollywood Tollywood Movies Music Food Shopping Sports Cricket Tennis Golf Adventure Sports National Info.
© 2000 V&K Softech Limited. All Rights Reserved.
