INTRODUCTION OF INDIA INDEX SERVICES & PRODUCTS LIMITED India Index Services & Products Limited (“IISL”)- is a joint venture between NSE and CRISIL LTD. (formerly Credit Rating Information Services of India Limited) which was set up in May 1998 to provide a variety of indices and indices related services and products for the Indian capital markets. It has a consulting and licensing agreement with Standard & Poor’s (S&P) – the world’s leading provider of investible equity indices, for co- branding equity indices. IISL provides a broad range of services, products and professional index services. It maintains over 80 equity indices comprising broad-based benchmark indices, sectoral indices and customized indices. Many investment and risk management products based on IISL indices have been developed in the recent past, within India and abroad. These include index based derivatives traded on NSE and Singapore Exchange and a number of index funds. NSE owns 50.99% equity in IISL. MEANING OF IISL India Index Services and Products Ltd (IISL), a joint venture between NSE and CRISIL Ltd., was set up in May 1998 to provide a variety of indices and index related services and products for the Indian capital markets. It has a licensing and marketing agreement with Standard and Poor's (S&P), the world's leading provider of investible equity indices, for co- 1
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INTRODUCTION OF INDIA INDEX SERVICES & PRODUCTS LIMITED
India Index Services & Products Limited (“IISL”)- is a joint venture between NSE and
CRISIL LTD. (formerly Credit Rating Information Services of India Limited) which was set up
in May 1998 to provide a variety of indices and indices related services and products for the
Indian capital markets. It has a consulting and licensing agreement with Standard & Poor’s
(S&P) – the world’s leading provider of investible equity indices, for co-branding equity indices.
IISL provides a broad range of services, products and professional index services. It maintains
over 80 equity indices comprising broad-based benchmark indices, sectoral indices and
customized indices. Many investment and risk management products based on IISL indices have
been developed in the recent past, within India and abroad. These include index based
derivatives traded on NSE and Singapore Exchange and a number of index funds. NSE owns
50.99% equity in IISL.
MEANING OF IISL
India Index Services and Products Ltd (IISL), a joint venture between NSE and CRISIL Ltd.,
was set up in May 1998 to provide a variety of indices and index related services and products
for the Indian capital markets. It has a licensing and marketing agreement with Standard and
Poor's (S&P), the world's leading provider of investible equity indices, for co-branding equity
indices. It is based in Mumbai, Maharashtra. India Index Services & Products Ltd. operates as a
subsidiary of NSE Strategic Investment Corporation Limited. The company maintains over 80
equity indices comprising broad-based benchmark indices, sectoral indices and customized
indices.
Many investment and risk management products based on IISL indices have been developed in
the recent past, within India and abroad. These include index based derivatives traded
on NSE, Singapore Exchange(SGX) and Chicago Mercantile Exchange (CME) and a number of
benchmark indices, sectoral indices and customized indices. The company was founded in 1998
and is based in Mumbai, Maharashtra. India Index Services & Products Ltd. operates as a
subsidiary of NSE Strategic Investment Corporation Limited.
IISL PLANS TECH INDEX
INDIA Index Services & Products Ltd (IISL), the joint venture formed by Crisil and National Stock Exchange, is likely to introduce a technology index in the near future.
Mr. Arup Mukherjee, CEO of IISL, said the company would consider stocks from technology-driven sectors such as telecommunications, media and other IT-enabled services. IISL sees considerable scope for these sectors in the days to come.
When constituted, the proposed index would be the 90th from the IISL stable, and would have an identity distinct from that of the information technology index currently maintained by the company.
Technology-intensive sectors account for a big part of the market capitalisation of the S&P CNX 500. Their market cap increased from 14.1 per cent to 29.5 per cent between October 1996 and October 1999 in this 500-share index. During this period, the bro ad market grew at around 15.7 per cent per annum.
Against these figures, the technology-intensive sectors grew by 39.1 per cent over the same period. If these were excluded, the market would have recorded only a 10.2 per cent growth.
IISL, which believes indices should not be susceptible to manipulation, hopes to come to the aid of developments that are set to take place in the Indian capital market. These include introduction of derivatives trading _ a system that would provide mark et participants a facility to manage their exposures in a cost-effective manner.
The Crisil-NSE joint venture would have a range of products (indices) and offer professional services to sustain investment opportunities in the emerging scenario, Mr. Mukherjee said.
According to Mr. Ashishkumar Chauhan, Vice-President, NSE, the Nifty (NSE's most popular index) accurately catches the behaviour of the equity markets. The last change in the Nifty took place about six months ago.
In the context of changes in its indices, NSE feels that ``index maintenance'' plays a significant role in terms of adding stability and consistency. IISL has an Index Policy Committee, which forms norms to manage the CNX range of indices. An Index Maint enance Sub-committee decides on alterations _ that is, adding and deleting _ to these indices.
Each index has a `replacement pool', made up of companies that meet all conditions that could make them part of that benchmark, Mr. Chauhan stated.
It is observed that the weightage of a particular stock in an index is a critical factor. Infosys Technologies, incidentally, has a 14 per cent weightage in Nifty. An eight per cent movement in Infosys would roughly translate into a 1-2 per cent movement in the Nifty.
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NSE campaign on derivatives NSE, which proposes to launch index futures trading soon, is conducting various training programmes and seminars to increase awareness.
According to Mr. Chauhan, the exchange has already held 50 programmes in its effort to reach out to small investors across the country. One such programme was held in Calcutta on Saturday. Two more are being planned in other centres in the East.
NSE, as part of this campaign, has introduced Web-based certification programme on derivatives as per the L C Gupta Committee's recommendation. `NSE's Certification in Financial Market', as the programme is called, has been attracting sections of the pub lic, including NSE's trading members.
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IISL PRODUCI AND SERVICE
IISL offers a wide range of products and services which are key support tools for the equity
markets. We provide reliable, accurate and valuable data on indices and index related services to
cater to the needs of various segments of users. Our speciality is indices based on Indian equity
markets, which may be used for benchmarking, trading or research. Use of IISL data or name or
indices requires a license or subscription.
Financial products on IISL Indices
IISL maintains, develops, compiles and disseminates entire gamut of equity indices. Licensing is
mandatory for tracking the performance of an IISL Index. Licensing is also required for use of
the name of IISL or CNX or any IISL Index. Fees for licensing would vary according to the type
of the product and the period.
IISL indices are useful for fund managers, corporates, brokers and all such enterprises connected
with investments in the equity markets. These indices can be used for tracking the markets,
understanding the performance of a company vis-a-vis the market, determining how an
investor’s portfolio is performing as compared to the market, trading derivative products and
most importantly for development of index based funds by mutual funds.
Data subscription
IISL provides index data on a periodic basis through its designated URL. Data includes Index
values, index constituents etc. This is a paid service and the subscription charges vary depending
upon the type of data sought and the period.
Customized Indices
IISL undertakes development & maintenance of customised indices for clients for tracking the
performance of the client portfolio vis-à-vis objectively defined benchmarks, or for
benchmarking NAV performance to customised indices. The customised indices can be sub-sets
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of an existing index or a completely new index viz; sector indices, individual business group
indices, industry indices, etc.
NV20 Index
Introduction:
The NV20 Index is designed to reflect the behaviour and performance of a diversified portfolio
of value companies forming a part of CNX Nifty Index. It consists of the most liquid value blue
chip companies. The NV20 Index comprises of 20 companies listed on the National Stock
Exchange (NSE). Value companies are normally perceived as companies with low PE (Price to
Earning), low PB (Price to Book) and high DY (Dividend Yield).
Index Construction & Review Methodology:
The index is calculated using free float market capitalization methodology and has a base date of
January 1, 2009 indexed to a base value of 1000. At the time of rebalancing of shares/ change in
index constituents/ change in investable weight factors (IWFs), the weightage of the index
constituent (where applicable) is capped at 13%. Weightage of such stock may increase up to a
maximum of 15% between the rebalancing periods.
Selection Criteria
The criteria for the NV20 Index include the following:
Companies forming the part CNX Nifty on the construction and rebalancing date are taken
into consideration for selection of stocks
Stocks are selected on the basis of ROCE (Return on Capital Employed), PE, PB and DY and
final ranking is derived to select the value stocks from CNX Nifty.
Ranks are assigned to all the Nifty constituents based on each parameter i.e. ROCE, PE, PB &
DY *.Relatively lower PE and PB receives a better rank, while higher DY and ROCE receive a
better rank.
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Weights of 0.4, 0.3, 0.2 and 0.1 are assigned to ranks of ROCE, PE, PB and Dividend Yield
respectively to derive the final ranking for selection.
The top 20 companies as per the ascending order of the final ranking are selected to form the
index.
Index Review
The review will take place on a semi-annual basis.
In order to reduce the number of rebalancing of constituents in a review, a buffer of 50% of
total number of the constituents shall be applied at the time of each review. This means that if the
existing constituent at the time of the review ranks within the top 30, the same can be retained in
the index. However if a stock ranks within the top 5 stocks in the rebalancing pool the stock with
the lowest rank from the existing constituents would be replaced with the same.
Effective 3rd March 2014 shares on which dividends of not less than four percent, including
bonus have been paid for at least seven years out of the nine years immediately preceding the
review period will be considered as one of the criteria for selection of the stock.
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Index Construction:
Calculation Methodology
The index is calculated using free float market capitalization methodology. At the time of
rebalancing of shares/ change in index constituents/ change in investable weight factors (IWFs),
the weightage of the index constituent (wherever applicable) is capped at 13%. Weightage of
such stock may increase up to a maximum of 15% between the rebalancing periods.
Index Maintenance:
Rebalancing
Index maintenance plays a crucial role in ensuring the stability of the index, as well as in meeting
its objective of being a consistent benchmark of the Indian equity markets.
IISL has constituted an Index Policy Committee, which is involved in the policy and guidelines
for managing the IISL indices. The Index Maintenance Sub-Committee makes all decisions on
additions and deletions of companies in the index within the policies and guidelines prescribed
by the Index Policy Committee.
Changes in the index level reflect changes in the market capitalization of the index which are
caused by stock price movements in the market. They do not reflect changes in the market
capitalization of the index, or of the individual stocks, that are caused by corporate actions such
as dividend payments, stock splits, mergers, or acquisitions etc.
When a stock is replaced by another stock in the index, the index divisor is adjusted so the
change in index market value that results from the addition and deletion does not change the
index level.
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Calculation Frequency
The index is calculated end of day basis on all days that the National Stock Exchange of India is
open for trading in equity shares.
Corporate Actions and Share Updates
Maintaining the index include monitoring and completing the adjustments for company additions
and deletions, share changes, stock splits, stock dividends, and stock price adjustments due to
restructurings or spin-offs. Some corporate actions, such as stock splits and stock dividends,
require simple changes in the common shares outstanding and the stock prices of the companies
in the index. Other corporate actions, such as share issuances, change the market value of an
index and require a divisor adjustment to prevent the value of the index from changing.
Adjusting the divisor for a change in market value leaves the value of the index unaffected by the
corporate action. This helps keep the value of the index accurate as a barometer of stock market
performance, and ensures that the movement of the index does not reflect the 5
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corporate actions of the companies in it. Divisor adjustments are made after the close of trading
and after the calculation of the closing value of the index.
Corporate actions such as splits, stock dividends, spin-offs, rights offerings, and share changes
are applied on the ex-date.
All singular instances of share changes arising out of additional issue of capital, such as ESOPs,
QIPs, ADR/GDR issues, private placements, warrant conversions, and FCCB conversions, which
have an impact of 5% or more on the issued share capital of the security, are implemented after
providing a five days’ notice period. Share repurchase (buyback) also have the same rules as
applicable to share changes.
Changes entailing less than 5% impact on the issued share capital are accumulated and
implemented on a monthly basis.
Where cumulative share changes exceed 5% of the issued share capital within a month, such
changes are implemented after providing five days’ notice period, from the date when such
cumulative changes exceeded 5%.
At the time of every rebalancing that is resulted on account of change in the index constituents,
change in equity, changes in IWFs and payment of special dividend (dividend amount more than
5% of the market price), weights of each scrip are realigned to 13% by making a suitable divisor
adjustment.
Currency of Calculation
For calculation of the index, all prices in Indian rupees are considered
Total Return
The index reflects the return one would get if an investment is made in the index portfolio. As
this index is computed on an end of day basis, it takes into account only the stock price
movements. However, the price indices do not consider the return from dividend payments of
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index constituent stocks. Only the capital gains and losses due to price movement are measured
by the price index. In order to get a true picture of returns, the dividends received from the index
constituent stocks also need to be included in the index movement. Such an index, which
includes the dividends received, is called the total return index.
The total return index reflects the returns on the index from stock prices fluctuation plus
dividend payments by constituent index stocks. IISL also calculates the total return index values
on end of day basis for all these indices. 6
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Index Governance:
Index Committee
A professional team at IISL manages the 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. IISL has constituted the Index Policy Committee, which is
involved in the policy and guidelines for managing IISL indices. The Index Maintenance Sub-
committee makes all decisions on additions and deletions of companies in the Index.
Index Policy
The indices use transparent, researched and publicly documented rules for its maintenance.
These rules are applied regularly to manage changes to the indices. Index reviews are carried out
periodically to ensure that each security in the index fulfills eligibility criteria.
Announcements
All index-related announcements are posted on the NSE Web site. Changes impacting the
constituent list are also posted on the Web site. Please refer to the NSE website at
www.nseindia.com.
Holiday Schedule
For the calculation of index, the IISL follows the official holiday schedule.
A complete holiday schedule for the year is available on the NSE website. Please refer to the
NSE website at www.nseindia.com
Index Precision
The level of precision for index calculation is as follows:
Shares outstanding are expressed in units
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Investible weight factors (IWFs) are expressed in six decimals
Capping factors are expressed in six decimals
Share prices are rounded to two decimal places
Float-adjusted market capitalization is stated to two decimal places
Index values are disseminated up to two decimal places
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Appendix:
* Selection Parameters Calculation :
PE is calculated by dividing the market capitalization by trailing profits of the last four
quarters adjusted for free float of a company.
PB is calculated by dividing the market capitalization by Net-worth adjusted for free float of a
company.
DY is calculated by dividing annual dividends by market capitalization adjusted for free float
of a company.
Average of 12 months of PE, PB and DY is taken.
ROCE = EBIT/ Average Capital Employed
Where, EBIT is Earning Before Interest & Tax
Capital Employed is sum of all shareholders funds and total borrowings
Price Index Calculations Formula:
The index is calculated using free float market capitalization methodology. At the time of
rebalancing of shares/ change in index constituents/ change in investable weight factors (IWFs),
the weightage of the index constituent (where applicable) is capped at 13%. Weightage of such
stock may increase up to a maximum of 15% between the rebalancing periods.
Index Market Capitalization = Total shares * Price * IWF * Capping Factor
Index Value = Current Index market capitalization / Base Market Capital * Base Index Value
(1000)
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Base market capital of the Index is the aggregate market capitalisation of each scrip in the index
during the base period. The market capitalization during the base period is equated to an Index
value of 1000 known as the base Index value.
Total Return (TR) Index Calculation Formula
The total return version of the index is also available, which assumes dividends are reinvested in
the index after the close on the ex-date. Corporate actions like dividend announcement do not
require any adjustment in the normal price index (other than special dividend). Special dividend
refers to a dividend that’s more than 10% of close price of a stock declaring dividend. A suitable
divisor adjustment is made in case of a special dividend.
A separate Total Returns Index (TR) is calculated which shows the returns on Index portfolio,
inclusive of dividends.
Calculation of the TR Index:
TR Index = [Prev. TR Index + (Prev. TR Index * Index returns)] + [Indexed dividends +
(Indexed dividends * Index returns)]
Index dividend for the day ‘t’=
Total Dividends of the scrips in the Index/ Index divisor for the day
Total dividends of scrips in the Index = Σ (Dividend per share * Modified index shares)
Modified index shares = Total shares * IWF * Capping Factor
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IISL DISCLAIMER:
The Product(s) are not sponsored, endorsed, sold or promoted by India Index Services &
Products Limited ("IISL"). IISL does not make any representation or warranty, express or
implied, to the owners of the Product(s) or any member of the public regarding the advisability
of investing in securities generally or in the Product(s) particularly or the ability of the CNX
Nifty Junior Index to track general stock market performance in India. The relationship of IISL
to the Issuers only in respect of the licensing of certain trademarks and trade names of its Index
which is determined, composed and calculated by IISL without regard to the Issuer or the
Product(s). IISL does not have any obligation to take the needs of the Issuer or the owners of the
Product(s) into consideration in determining, composing or calculating the CNX Nifty Junior
Index. IISL is not responsible for or has participated in the determination of the timing of, prices
at, or quantities of the Product(s) to be issued or in the determination or calculation of the
equation by which the Product(s) is to be converted into cash. IISL has no obligation or liability
in connection with the administration, marketing or trading of the Product(s). IISL do not
guarantee the accuracy and/or the completeness of the CNX Nifty Junior Index or any data
included therein and they shall have no liability for any errors, omissions, or interruptions
therein. IISL does not make any warranty, express or implied, as to results to be obtained by the
Issuer, owners of the product(s), or any other person or entity from the use of the CNX Nifty
Junior Index or any data included therein. IIS L makes no express or implied warranties, and
expressly disclaims all warranties of merchantability or fitness for a particular purpose or use
with respect to the index or any data included therein. Without limiting any of the foregoing,
IISL expressly disclaim any and all liability for any damages or losses arising out of or related to
the Products, including any and all direct, special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages. An investor, by
subscribing or purchasing an interest in the Product, will be regarded as having acknowledged,
understood and accepted the disclaimer referred to in clauses above and will be bound by it.
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CNX NIFTY OF IISL
The CNX Nifty, also called the Nifty 50 or simply the Nifty, is National Stock Exchange of
India's benchmark stock market index for Indian equity market. Nifty is owned and managed by
India Index Services and Products (ISL), which is a wholly owned subsidiary of the NSE
Strategic Investment Corporation Limited. IISL had a marketing and licensing agreement with
Standard & Poor's for co-branding equity indices until 2013. The 'CNX' in the name stands for
'CRISIL NSE Index'.
CNX Nifty has shaped up as a largest single financial product in India, with an ecosystem
comprising: exchange traded funds (onshore and offshore), exchange-traded futures and options
(at NSE in India and at SGX and CME abroad), other index funds and OTC derivatives (mostly
offshore).
The CNX Nifty covers 22 sectors of the Indian economy and offers investment managers
exposure to the Indian market in one portfolio. During 2008-12, CNX Nifty 50 Index share of
NSE market capitalisation fell from 65% to 29%[1] due to the rise of sectoral indices like CNX
Bank, CNX IT, CNX Mid Cap, etc. The CNX Nifty 50 Index gives 29.70% weightage to
financial services, 0.73% weightage to industrial manufacturing and nil weightage to agricultural
sector.[2]
The CNX Nifty index is a free float market capitalisation weighted index. The index was initially
calculated on full market capitalisation methodology. From June 26, 2009, the computation was
changed to free float methodology. The base period for the CNX Nifty index is November 3,
1995, which marked the completion of one year of operations of National Stock Exchange Equity
Market Segment. The base value of the index has been set at 1000, and a base capital of Rs 2.06
trillion.[3] The CNX Nifty Index was developed by Ajay Shah and Susan Thomas.