Market indices

INDEX INDEX CONSTRUCTIONCONSTRUCTION

What is an Index?What is an Index? Any Index is used to give information about some Any Index is used to give information about some

system or financial markets. system or financial markets. Financial Indexes are constructed to measure Financial Indexes are constructed to measure

price movements of stocks, bonds, and other price movements of stocks, bonds, and other investments.investments.

Stock market Indexes are meant to capture the Stock market Indexes are meant to capture the overall behavior of equity markets.overall behavior of equity markets.

It is created with a group of stocks that are It is created with a group of stocks that are representative of the whole market or a specified representative of the whole market or a specified sector or segment of the market.sector or segment of the market.

Any Index is calculated with reference to a base Any Index is calculated with reference to a base period and a base Index value.period and a base Index value.

uses of Indexesuses of Indexes

      Traditional usesTraditional uses Indicator of Market Movement / ReturnsIndicator of Market Movement / Returns Indexes reflect highly up-to-date informationIndexes reflect highly up-to-date information Lead indicator of the economyLead indicator of the economy

         Higher ApplicationsHigher Applications Index Funds - Passive Fund ManagementIndex Funds - Passive Fund Management Index Derivatives - Index Futures and Index Index Derivatives - Index Futures and Index

OptionsOptions

IntroductionIntroduction SENSEX, first compiled in 1986, was calculated on SENSEX, first compiled in 1986, was calculated on

a "Market Capitalization-Weighted" methodology of a "Market Capitalization-Weighted" methodology of 30 component stocks representing large, well-30 component stocks representing large, well-established and financially sound companies established and financially sound companies across key sectors.across key sectors.

The base year of SENSEX was taken as 1978-79.The base year of SENSEX was taken as 1978-79. SENSEX today is widely reported in both domestic SENSEX today is widely reported in both domestic

and international markets through print as well as and international markets through print as well as electronic media. electronic media.

It is scientifically designed and is based on globally It is scientifically designed and is based on globally accepted construction and review methodology.accepted construction and review methodology.

Since September 1, 2003, SENSEX is being Since September 1, 2003, SENSEX is being calculated on a free-float market capitalization calculated on a free-float market capitalization methodology.methodology.

The "free-float market capitalization-weighted" The "free-float market capitalization-weighted" methodology is a widely followed index methodology is a widely followed index construction methodology on which majority of construction methodology on which majority of global equity indices are based;global equity indices are based;

All major index providers like MSCI, FTSE, STOXX, All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-float S&P and Dow Jones use the free-float methodology.methodology.

As the oldest index in the country, it provides the As the oldest index in the country, it provides the time series data over a fairly long period of time time series data over a fairly long period of time (from 1979 onwards). (from 1979 onwards).

SENSEX Calculation SENSEX Calculation MethodologyMethodology

SENSEX is calculated using the "Free-float Market SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein, the level of Capitalization" methodology, wherein, the level of index at any point of time reflects the free-float index at any point of time reflects the free-float market value of 30 component stocks relative to market value of 30 component stocks relative to a base period.a base period.

The market capitalization of a company is The market capitalization of a company is determined by multiplying the price of its stock determined by multiplying the price of its stock by the number of shares issued by the company.by the number of shares issued by the company.

This market capitalization is further multiplied by This market capitalization is further multiplied by the free-float factor to determine the free-float the free-float factor to determine the free-float market capitalization.market capitalization.

The base period of SENSEX is 1978-79 and the The base period of SENSEX is 1978-79 and the base value is 100 index points.base value is 100 index points.

This is often indicated by the notation 1978-This is often indicated by the notation 1978-79=100.79=100.

The calculation of SENSEX involves dividing the The calculation of SENSEX involves dividing the

free-float market capitalization of 30 companies free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. in the Index by a number called the Index Divisor.

The Divisor is the only link to the original base The Divisor is the only link to the original base period value of the SENSEX.period value of the SENSEX.

It keeps the Index comparable over time and is It keeps the Index comparable over time and is

the adjustment point for all Index adjustments the adjustment point for all Index adjustments arising out of corporate actions, replacement of arising out of corporate actions, replacement of scrips etc. scrips etc.

During market hours, prices of the index scrips, at During market hours, prices of the index scrips, at which latest trades are executed, are used by the which latest trades are executed, are used by the trading system to calculate SENSEX on a trading system to calculate SENSEX on a continuous basis.continuous basis.

SENSEX - Scrip Selection SENSEX - Scrip Selection CriteriaCriteria

The general guidelines for selection of The general guidelines for selection of constituents in SENSEX are as follows:  constituents in SENSEX are as follows:  

Listed History: Listed History: The scrip should have a listing The scrip should have a listing history of at least 3 months at BSE.history of at least 3 months at BSE.

Exception may be considered if full market Exception may be considered if full market capitalization of a newly listed company ranks capitalization of a newly listed company ranks among top 10 in the list of BSE universe.among top 10 in the list of BSE universe.

In case, a company is listed on account of In case, a company is listed on account of merger/ demerger/ amalgamation, minimum merger/ demerger/ amalgamation, minimum listing history would not be required.listing history would not be required.

SENSEX - Scrip Selection SENSEX - Scrip Selection CriteriaCriteria

Trading Frequency: Trading Frequency: The scrip should have been The scrip should have been traded on each and every trading day in the last traded on each and every trading day in the last three months at BSE. three months at BSE.

Exceptions can be made for extreme reasons like Exceptions can be made for extreme reasons like scrip suspension etc.scrip suspension etc.   

Final Rank: Final Rank: The scrip should figure in the top The scrip should figure in the top 100 companies listed by final rank. 100 companies listed by final rank.

The final rank is arrived at by assigning 75% The final rank is arrived at by assigning 75% weightage to the rank on the basis of three-weightage to the rank on the basis of three-month average full market capitalization and 25% month average full market capitalization and 25% weightage to the liquidity rank based on three-weightage to the liquidity rank based on three-month average daily turnover & three-month month average daily turnover & three-month average impact cost.average impact cost.

Market Capitalization Weightage: Market Capitalization Weightage: The The weightage of each scrip in SENSEX based on weightage of each scrip in SENSEX based on three-month average free-float market three-month average free-float market capitalization should be at least 0.5% of the capitalization should be at least 0.5% of the Index.Index.   

Industry/Sector Representation: Industry/Sector Representation: Scrip Scrip selection would generally take into account a selection would generally take into account a balanced representation of the listed companies balanced representation of the listed companies in the universe of BSE.in the universe of BSE.   

Track Record: Track Record: In the opinion of the BSE Index In the opinion of the BSE Index Committee, the company should have an Committee, the company should have an acceptable track record.acceptable track record.   

Understanding Free-float Understanding Free-float MethodologyMethodology

ConceptConcept Free-float methodology refers to an index Free-float methodology refers to an index

construction methodology that takes into construction methodology that takes into consideration only the free-float market capitalization consideration only the free-float market capitalization of a company for the purpose of index calculation and of a company for the purpose of index calculation and assigning weight to stocks in the index. assigning weight to stocks in the index.

Free-float market capitalization takes into Free-float market capitalization takes into consideration only those shares issued by the consideration only those shares issued by the company that are readily available for trading in the company that are readily available for trading in the market. market.

It generally excludes promoters' holding, government It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares holding, strategic holding and other locked-in shares that will not come to the market for trading in the that will not come to the market for trading in the normal course. normal course.

In other words, the market capitalization of each In other words, the market capitalization of each company in a free-float index is reduced to the company in a free-float index is reduced to the extent of its readily available shares in the extent of its readily available shares in the market.market.

Subsequently all BSE indices with the exception Subsequently all BSE indices with the exception of BSE-PSU index have adopted the free-float of BSE-PSU index have adopted the free-float methodology.methodology.

Major advantages of Free-float Major advantages of Free-float MethodologyMethodology

A Free-float index reflects the market trends more A Free-float index reflects the market trends more rationally as it takes into consideration only those rationally as it takes into consideration only those shares that are available for trading in the market.shares that are available for trading in the market.   

Free-float Methodology makes the index more broad-Free-float Methodology makes the index more broad-based by reducing the concentration of top few based by reducing the concentration of top few companies in Index.companies in Index.   

A Free-float index aids both active and passive A Free-float index aids both active and passive investing styles. investing styles.

It aids active managers by enabling them to It aids active managers by enabling them to benchmark their fund returns vis-Ã -vis an investible benchmark their fund returns vis-Ã -vis an investible index. index.

This enables an apple-to-apple comparison thereby This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of facilitating better evaluation of performance of active managers.active managers.

Being a perfectly replicable portfolio of stocks, a Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the Free-float adjusted index is best suited for the passive managers as it enables them to track the passive managers as it enables them to track the index with the least tracking error.index with the least tracking error.

Free-float Methodology improves index flexibility Free-float Methodology improves index flexibility in terms of including any stock from the universe in terms of including any stock from the universe of listed stocks. of listed stocks.

This improves market coverage and sector This improves market coverage and sector coverage of the index.coverage of the index.

For example, under a Full-market capitalization For example, under a Full-market capitalization methodology, companies with large market methodology, companies with large market capitalization and low free-float cannot generally be capitalization and low free-float cannot generally be included in the Index because they tend to distort the included in the Index because they tend to distort the index by having an undue influence on the index index by having an undue influence on the index movement. movement.

However, under the Free-float Methodology, since only However, under the Free-float Methodology, since only the free-float market capitalization of each company is the free-float market capitalization of each company is considered for index calculation, it becomes possible considered for index calculation, it becomes possible to include such closely-held companies in the index to include such closely-held companies in the index while at the same time preventing their undue while at the same time preventing their undue influence on the index movement.influence on the index movement.   

Globally, the Free-float Methodology of index Globally, the Free-float Methodology of index construction is considered to be an industry best construction is considered to be an industry best practice and all major index providers like MSCI, practice and all major index providers like MSCI, FTSE, S&P and STOXX have adopted the same.FTSE, S&P and STOXX have adopted the same.

MSCI, a leading global index provider, shifted all MSCI, a leading global index provider, shifted all

its indices to the Free-float Methodology in 2002. its indices to the Free-float Methodology in 2002. The MSCI India Standard Index, which is followed The MSCI India Standard Index, which is followed

by Foreign Institutional Investors (FIIs) to track by Foreign Institutional Investors (FIIs) to track Indian equities, is also based on the Free-float Indian equities, is also based on the Free-float Methodology. Methodology.

NASDAQ-100, the underlying index to the famous NASDAQ-100, the underlying index to the famous Exchange Traded Fund (ETF) - QQQ is based on Exchange Traded Fund (ETF) - QQQ is based on the Free-float Methodology. the Free-float Methodology. 

Definition of Free-floatDefinition of Free-float

Shareholding of investors that would not, in the Shareholding of investors that would not, in the normal course come into the open market for normal course come into the open market for trading are treated as 'Controlling/ Strategic trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float.Holdings' and hence not included in free-float.

Specifically, the following categories of holding Specifically, the following categories of holding are generally excluded from the definition of are generally excluded from the definition of Free-float:Free-float:

Shares held by founders/directors/ acquirers Shares held by founders/directors/ acquirers which has control elementwhich has control element   

Shares held by persons/ bodies with "Controlling Shares held by persons/ bodies with "Controlling Interest"Interest"   

Shares held by Government as promoter/acquirerShares held by Government as promoter/acquirer   

Holdings through the FDI RouteHoldings through the FDI Route   

Strategic stakes by private corporate bodies/ Strategic stakes by private corporate bodies/ individualsindividuals   

Equity held by associate/group companies (cross-Equity held by associate/group companies (cross-holdings)holdings)   

Equity held by Employee Welfare TrustsEquity held by Employee Welfare Trusts   

Locked-in shares and shares which would not be Locked-in shares and shares which would not be sold in the open market in normal course.sold in the open market in normal course.

The remaining shareholders fall under the The remaining shareholders fall under the Free-float category.Free-float category.

Determining Free-float Factors of Determining Free-float Factors of CompaniesCompanies

BSE has designed a Free-float format, which is filled and BSE has designed a Free-float format, which is filled and submitted by all index companies on a quarterly basis. submitted by all index companies on a quarterly basis.

BSE determines the Free-float factor for each company BSE determines the Free-float factor for each company based on the detailed information submitted by the based on the detailed information submitted by the companies in the prescribed format.companies in the prescribed format.

Free-float factor is a multiple with which the total market Free-float factor is a multiple with which the total market capitalization of a company is adjusted to arrive at the capitalization of a company is adjusted to arrive at the Free-float market capitalization. Once the Free-float of a Free-float market capitalization. Once the Free-float of a company is determined, it is rounded-off to the higher company is determined, it is rounded-off to the higher multiple of 5 and each company is categorized into one multiple of 5 and each company is categorized into one of the 20 bands given below. A Free-float factor of say of the 20 bands given below. A Free-float factor of say 0.55 means that only 55% of the market capitalization of 0.55 means that only 55% of the market capitalization of the company will be considered for index calculation.the company will be considered for index calculation.

Free-float Bands: Free-float Bands:   

% Free-Float Free-Float Factor % Free-Float Free-Float Factor

>0 - 5% 0.05 >50 - 55% 0.55

>5 - 10% 0.10 >55 - 60% 0.60

>10 - 15% 0.15 >60 - 65% 0.65

>15 - 20% 0.20 >65 - 70% 0.70

>20 - 25% 0.25 >70 - 75% 0.75

>25 - 30% 0.30 >75 - 80% 0.80

>30 - 35% 0.35 >80 - 85% 0.85

>35 - 40% 0.40 >85 - 90% 0.90

>40 - 45% 0.45 >90 - 95% 0.95

>45 - 50% 0.50 >95 - 100% 1.00

Index Closure AlgorithmIndex Closure Algorithm

The closing SENSEX on any trading day is computed The closing SENSEX on any trading day is computed taking the weighted average of all the trades on taking the weighted average of all the trades on SENSEX constituents in the last 30 minutes of SENSEX constituents in the last 30 minutes of trading session. trading session.

If a SENSEX constituent has not traded in the last If a SENSEX constituent has not traded in the last 30 minutes, the last traded price is taken for 30 minutes, the last traded price is taken for computation of the Index closure.computation of the Index closure.

If a SENSEX constituent has not traded at all in a If a SENSEX constituent has not traded at all in a day, then its last day's closing price is taken for day, then its last day's closing price is taken for computation of Index closure. computation of Index closure.

The use of Index Closure Algorithm prevents any The use of Index Closure Algorithm prevents any intentional manipulation of the closing index value.intentional manipulation of the closing index value.

Maintenance of SENSEXMaintenance of SENSEX One of the important aspects of maintaining One of the important aspects of maintaining

continuity with the past is to update the base continuity with the past is to update the base year average.year average.

The base year value adjustment ensures that The base year value adjustment ensures that replacement of stocks in Index, additional issue of replacement of stocks in Index, additional issue of capital and other corporate announcements like capital and other corporate announcements like 'rights issue' etc. do not destroy the historical 'rights issue' etc. do not destroy the historical value of the index. value of the index.

The beauty of maintenance lies in the fact that The beauty of maintenance lies in the fact that adjustments for corporate actions in the Index adjustments for corporate actions in the Index should not per se affect the index values.should not per se affect the index values.

The BSE Index Cell does the day-to-day The BSE Index Cell does the day-to-day maintenance of the index within the broad index maintenance of the index within the broad index policy framework set by the BSE Index policy framework set by the BSE Index Committee.Committee.

The BSE Index Cell ensures that SENSEX and all The BSE Index Cell ensures that SENSEX and all the other BSE indices maintain their benchmark the other BSE indices maintain their benchmark properties by striking a delicate balance between properties by striking a delicate balance between frequent replacements in index and maintaining frequent replacements in index and maintaining its historical continuity. its historical continuity.

The BSE Index Committee comprises of capital The BSE Index Committee comprises of capital market expert, fund managers, market market expert, fund managers, market participants and members of the BSE Governing participants and members of the BSE Governing Board.Board.

On-Line Computation of the On-Line Computation of the IndexIndex

During trading hours, value of the Index is During trading hours, value of the Index is calculated and disseminated on real time basis.calculated and disseminated on real time basis.

This is done automatically on the basis of prices This is done automatically on the basis of prices at which trades in Index constituents are at which trades in Index constituents are executed.executed.

Adjustment for Bonus, Rights Adjustment for Bonus, Rights and Newly Issued Capitaland Newly Issued Capital

SENSEX calculation needs to be adjusted for issue SENSEX calculation needs to be adjusted for issue of Bonus or Rights shares If no adjustments were of Bonus or Rights shares If no adjustments were made, a discontinuity would arise between the made, a discontinuity would arise between the current value of the index and its previous value current value of the index and its previous value despite the non-occurrence of any economic despite the non-occurrence of any economic activity of substance.activity of substance.

At the BSE Index Cell , the base value is adjusted, At the BSE Index Cell , the base value is adjusted, which is used to alter market capitalization of the which is used to alter market capitalization of the component stocks to arrive at the SENSEX value.component stocks to arrive at the SENSEX value.

The BSE Index Cell keeps a close watch on the The BSE Index Cell keeps a close watch on the events that might affect the index on a regular events that might affect the index on a regular basis and carries out daily maintenance of all the basis and carries out daily maintenance of all the 19 Indices.19 Indices.

Adjustments for Rights IssuesAdjustments for Rights IssuesWhen a company, included in the compilation of the When a company, included in the compilation of the index, issues right shares, the free-float market index, issues right shares, the free-float market capitalization of that company is increased by the capitalization of that company is increased by the number of additional shares issued based on the number of additional shares issued based on the theoretical (ex-right) price. An offsetting or theoretical (ex-right) price. An offsetting or proportionate adjustment is then made to the Base proportionate adjustment is then made to the Base Market capitalization.Market capitalization.

    Adjustments for Bonus IssueAdjustments for Bonus Issue

When a company, included in the compilation of the When a company, included in the compilation of the index, issues bonus shares, the market capitalization index, issues bonus shares, the market capitalization of that company does not undergo any change. of that company does not undergo any change. Therefore, there is no change in the Base Market Therefore, there is no change in the Base Market capitalization, only the 'number of shares' in the capitalization, only the 'number of shares' in the formula is updated.   formula is updated.  

Other IssuesOther IssuesBase Market capitalization adjustment is required Base Market capitalization adjustment is required when new shares are issued by way of conversion when new shares are issued by way of conversion of debentures, mergers, spin-offs etc. or when of debentures, mergers, spin-offs etc. or when equity is reduced by way of buy-back of shares, equity is reduced by way of buy-back of shares, corporate restructuring etc. corporate restructuring etc.    

Base Market capitalization Adjustment Base Market capitalization Adjustment The formula for adjusting the Base Market The formula for adjusting the Base Market

capitalization is as follows:capitalization is as follows: New Base Market capitalization = Old Base Market New Base Market capitalization = Old Base Market

capitalization x capitalization x (New (New Market capitalization/ Old Market capitalization/ Old

Market capitalization)  Market capitalization)                                                                                                                                                                                            

To illustrate, suppose a company issues right To illustrate, suppose a company issues right shares which increases the market capitalization of shares which increases the market capitalization of the shares of that company by say, Rs.100 crores. the shares of that company by say, Rs.100 crores.

The existing Base Market capitalization (Old Base The existing Base Market capitalization (Old Base Market capitalization), say, is Rs.2450 crores and Market capitalization), say, is Rs.2450 crores and the aggregate market capitalization of all the the aggregate market capitalization of all the shares included in the index before the right issue shares included in the index before the right issue is made is, say Rs.4781 crore. is made is, say Rs.4781 crore.

The "New Base Market capitalization " will then be:The "New Base Market capitalization " will then be: 2450 x (4781+100)   2450 x (4781+100)  

-------------------------- = Rs.2501.24 crores -------------------------- = Rs.2501.24 crores          4781          4781 

This figure of Rs. 2501.24 crore will be used This figure of Rs. 2501.24 crore will be used as the Base Market capitalization for as the Base Market capitalization for calculating the index number from then calculating the index number from then onwards till the next base change becomes onwards till the next base change becomes necessary.necessary.

Index Review FrequencyIndex Review Frequency

The BSE Index Committee meets every quarter to The BSE Index Committee meets every quarter to discuss index related issues.discuss index related issues.

In case of a revision in the Index constituents, the In case of a revision in the Index constituents, the announcement of the incoming and outgoing announcement of the incoming and outgoing scrips is made six weeks in advance of the actual scrips is made six weeks in advance of the actual implementation of the revision of the Index.implementation of the revision of the Index.  

Introduction The S&P CNX Nifty is the headline index on the

National Stock Exchange of India Ltd. (NSE). The Index tracks the behavior of a portfolio of blue

chip companies, the largest and most liquid Indian securities.

It includes 50 of the approximately 1430 companies listed on the NSE, captures approximately 65% of its float-adjusted market capitalization and is a true reflection of the Indian stock market.

The S&P CNX Nifty covers 21 sectors of the Indian economy and offers investment managers exposure to the Indian market in one efficient portfolio.

The Index has been trading since April 1996 and is well suited for benchmarking, index funds and index based derivatives.

Highlights The S&P CNX Nifty is a 50 stock, float-adjusted

market-capitalization weighted index for India, accounting for 21 diversified sectors of the economy.

It is used for a variety of purposes, such as benchmarking fund portfolios, index based derivatives and index funds.

The S&P CNX Nifty is derived from economic research and is created for those interested in investing and trading in Indian equities.

Market Representation. The S&P CNX Nifty stocks represent about 65% of the total float-adjusted market capitalization of the National Stock Exchange (NSE).

Diversification. The S&P CNX Nifty is a diversified index, accurately reflecting the overall market. The reward-to-risk ratio of S&P CNX Nifty is higher than other leading indices, offering similar returns but at lesser risk.

Eligibility Criteria

Selection of the index set is based on the following criteria:• Liquidity (Impact Cost)• Float-Adjusted Market Capitalization• Float• Domicile• Eligible Securities• Other Variables

Liquidity For inclusion in the index, the security should

have traded at an average impact cost of 0.50 % or less during the last six months, for 90% of the observations.

Impact cost is the cost of executing a transaction in a security in proportion to its index weight, measured by market capitalization at any point in time.

This is the percentage mark up suffered while buying/selling the desired quantity of a security compared to its ideal price -- (best buy + best sell)/2.

Float-Adjusted Market Capitalization. Companies eligible for inclusion in the S&P CNX Nifty must have at least twice the float-adjusted market capitalization of the current smallest index constituent.

Float. Companies eligible for inclusion in the S&P CNX Nifty should have at least 10% of its stock available to investors (float).

For this purpose, float is stocks which are not held by the promoters and associated entities (where identifiable) of such companies.

Domicile. The company must be domiciled in India and trade on the NSE.

Eligible Securities. All common shares listed on the NSE (which are of equity and not of a fixed income nature) are eligible for inclusion in the S&P CNX Nifty index.

Convertible stock, bonds, warrants, rights, and preferred stock that provide a guaranteed fixed return are not eligible.

Other Variables A company which comes out with an IPO is eligible

for inclusion in the index if it fulfills the normal eligibility criteria for the index -- impact cost, float-adjusted market capitalization and float -- for a three-month period instead of a six-month period.

Timing of Changes The index is reviewed semi-annually, and a six-

week notice is given to the market before making any changes to the index constituents.

Additions. The complete list of eligible securities is compiled based on the float adjusted market capitalization criteria.

After that, the liquidity (impact cost) and float adjustment filters are applied to them, respectively.

The top ranking companies form the replacement pool.

The top stocks, in terms of size (float-adjusted market capitalization) are, then, identified for inclusion in the index from the replacement pool.

Deletions. Stocks may be deleted due to mergers, acquisitions or spin-offs.

Otherwise, as noted above, twice a year a new eligible stock list is drawn up to review against the current constituents.

If this new list warrants changes in the existing constituent list, then the smallest existing constituents are dropped in favor of the new additions.

Index Construction Approaches The S&P CNX Nifty is computed using a float-

adjusted, market capitalization weighted methodology*, 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 methodology also takes into account constituent changes in the index and corporate actions such as stock splits, rights issuance, etc., without affecting the index value.

* Beginning June 26, 2009, the S&P CNX Nifty is being computed using float-adjusted market capitalization weighted method, wherein the level of index reflects the float-adjusted market capitalization of all stocks in the Index.

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.

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, distributions to shareholders, mergers, or acquisitions.

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.

Calculation Frequency. The index is calculated real-time on all days that the National Stock Exchange of India is open.

Base Date The base period for the S&P CNX Nifty index is

November 3, 1995, which marked the completion of one year of operations of NSE's Capital Market Segment.

The base value of the index has been set at 1000, and a base capital of Rs 2.06 trillion.

Index Calculations Formulas

The S&P CNX Nifty index is computed by dividing the float-adjusted market capitalization of the index component securities as of current date (MCn) by the float adjusted market capitalization of the same securities as of initial date (MC1) multiplied by the index value as of initial date (I1):

In = (I1 * MCn)/MC1

where: MCn = Float-adjusted index market capitalization

as of the current date.

where: Qi = Number of float adjusted shares outstanding

of the ith issue as of the current date. Pi = Security price of the ith issue as of the

current date. N = Total number of component securities used

in the index calculation.