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Old 08-18-2007   #1
rajivkalebar
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Default calculation of Nifty

plese let me know how is nifty calculated?


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Old 08-18-2007   #2
Lord_of_the_Ring
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Default Calculation of NIFTY

This is from NSE website

S&P CNX Nifty Method of Computation

S&P CNX Nifty is computed using market capitalization weighted method, 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 method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value.


Base Date and Value

The base period selected for S&P CNX Nifty index is the close of prices on November 3, 1995, which marks 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.



Criteria for Selection of Constituent Stocks

The constituents and the criteria for the selection judge the effectiveness of the index. Selection of the index set is based on the following criteria :

Liquidity (Impact Cost)
Market Capitalisation
Floating Stock
Others



Liquidity (Impact Cost)

For inclusion in the index, the security should have traded at an average impact cost of 0.75% or less during the last six months for 90% of the observations for a basket size of Rs. 5 million.

Impact cost is cost of executing a transaction in a security in proportion to the weightage of its market capitalisation as against the index market capitalisation at any point of 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

For example, for the below order book:
Buy (Qty.)Buy (Price)Sell (Qty.)Sell (Price) 100098100099 2000971500100 1000961000101 To Buy 1500 Shares:
Ideal Price = (99 + 98)/2 = 98.5
Actual Buy Price = (1000 X 99 + 500 X 100)/1500 = 99.33
(For 1500 shares) Impact Cost = [(99.33 - 98.5)/98.5] X 100 = 0.84%


Market Capitalisation

Companies eligible for inclusion in Nifty must have a six monthly average market capitalisation of Rs.500 crores or more during the last six months.

Floating Stock

Companies eligible for inclusion in S&P CNX Nifty should have atleast 10% floating stock. For this purpose, floating stock shall mean stocks which are not held by the promoters and associated entities (where identifiable) of such companies.

Others

A company which comes out with a IPO will be eligible for inclusion in the index, if it fulfills the normal eligiblity criteria for the index like impact cost, market capitalisation and floating stock, for a 3 month period instead of a 6 month period.

Replacement of Stock from the Index:

A stock may be replaced from an index for the following reasons:
  1. Compulsory changes like corporate actions, delisting etc. In such a scenario, the stock having largest market capitalization and satisfying other requirements related to liquidity, turnover and free float will be considered for inclusion.
  2. When a better candidate is available in the replacement pool, which can replace the index stock i.e. the stock with the highest market capitalization in the replacement pool has at least twice the market capitalization of the index stock with the lowest market capitalization.
With respect to (ii) above, a maximum of 10% of the index size (number of stocks in the index) may be changed in a calendar year. Changes carried out for (ii) above are irrespective of changes, if any, carried out for (i) above.
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