Question

NSE Indices	Word Markets
Index	Current	Prev.	% CHG	Index	Current	Prev.	% Change
S&P CNX Nifty	3641.1	3770.55	-3.43%	NYSE Composite	8926.88	9120.93	-2.13%
CNX Nifty Junior	6458.55	6634.85	-2.66%	NASDAQ Composite	2350.57	2402.29	-2.15%
CNX IT	5100.5	5314.05	-4.02%	DOW Jones I. A.	12076	12318.6	-1.97%
Bank Nifty	5039.05	5251.55	-4.05%	S & P 500	1377.95	1406.6	-2.04%
CNX 100	3519.35	3540.35	-3.32%	Nikkei 225	16676.9	17178.8	-2.92%
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The above figures are taken from the website of national stock exchange of India. They illustrate the movement of NSE stock indices as well as world stock indices on the date indicated.

Questions

1. What do you mean by a stock index? How is it calculated?

2. What conclusions can you draw from the various movements of NSE stock indices?

3. What factors affect the movement of stock indices? Elaborate on the nature of these factors.

4. What relationship do you see between the movement of indices in world markets and NSE indices?

5. Give details of all the indices mentioned above. You can find information on the web or business magazines.

Answer 1

1. Stock index reflects the market behaviour with the help of a representative set of stocks. It reflects how the prices of various securities change during a period of time. The following methods can be used for the calculation of stock index:

i. Price weighted index: In this method certain sample shares are chosen, the sum of prices of which is taken for a certain year or month or week or day with reference to a base year.

ii. Equal weighted index: This index takes the average of the price relatives of the sample shares for a particular period with reference to a base year.

iii. Value weighted index: In this method the aggregate of market capitalisation is taken for sample shares with reference to a base year.

2. According to the given data there is a fall in the index in all the sectors. This suggests a situation of depression in the market.

3. The following factors affect the movement of stock indices:

i. Policies of the government: Liberalised policies of the government boosts economic activity in the country, which in turn positively affects the stock index (i.e. shows a rising trend).

ii. Political scenario in the country: A stable and positive political scenario in the country offers a conducive environment for business and economic activities. Thereby, in stable political condition the stock index tends to show a positive trend.

iii. Financial position of various countries: The stock index of one country is not just dependent on its own financial position but also on the financial position of other countries of the world. A good financial position of other countries positively affects the trade in the world which in turn positively affects the stock index of various countries.

4. According to the data the world indices and the NSE indices show movement in the same direction. This suggests a direct relation between the two. As the world index shows a negative trend there is a negative trend in NSE as well.

5. The details of various indices are as follows.
i. S&P CNX Nifty: It is the National Stock Exchange of India. It is owned, managed and controlled by the Indian Index services and products.

ii. CNX Nifty junior: Nifty junior is the index that represents securities after Nifty. It comprises of 50 companies.

iii. CNX IT: It is an index comprising of the IT (software or hardware) stocks that are most liquid and have high capitalisation. It helps he investors in comparing the performance of the IT segment.

iv. Bank Nifty: It is an index comprising of the most liquid and high capitalisation stocks of the banking sector. It helps the investors in keeping a track of the performance of the banking sector.

v. CNX 100: It is an index that comprises of 100 stocks from 38 different sectors of the economy. It is owned, managed and controlled by the Indian Index services and products.

vi. NYSE composite: This index comprises of various stocks listed on the New York Stock Exchange (including foreign stocks, American Depository Stocks, real estate investment trust and tracking stocks). In this way it is a representative of the market performance.

vii. NASDAQ composite: This index includes the stock listed on NASDAQ. An important feature of this index is that it is not just limited to the stocks of companies having U.S headquarters.

viii. Dow Jones IA: It refers to the price weighted average of 30 identified stocks that are traded on New York stock exchange and NASDAQ.

ix. S&P 500: It is a stock market index comprising of those 500 companies that are commonly listed on New York stock exchange or NASDAQ.

x. Nikki 225: It is a Japanese stock index comprising of 225 top Japanese companies listed on the Tokyo Stock Exchange.