REPORT On

INTERNATIONAL INDICES

MASTER OF BUSINESS ADMINISTRATION Academic Session 2008-2010
SUBMITTED TO
Ms. Shilky (Faculty MIB)

SUBMITTED BY
Puneet Jain (082)

Delhi Institute of Advance Studies
1 Copyrights© Puneet Jain 2009-2011

International Indices
“Stock Market is a place where the stocks of a listed company are traded. A single figure that sums up the overall performance of the market on a daily basis is the Stock Index. A good Stock Index captures the movement of the well diversified and highly liquid stocks. For a lay man it is the pulse rate of the economy.Index movements reflect the changing expectations of the stock market about future dividends of the corporate sector. “

What do you mean by Stock Market Index ? A stock market index is a method of measuring a section of the stock market. Many indices are cited by news or financial services firms and are used to benchmark the performance of portfolios such as mutual funds. A national index represents the performance of the stock market of a given nation—and by proxy, reflects investor sentiment on the state of its economy. The most regularly quoted market indices are national indices composed of the stocks of large companies listed on a nation's largest stock exchanges, such as the British FTSE 100, the French CAC 40, the German DAX, the Japanese Nikkei 225, the American DJIA and S&P 500, the Indian Sensex and S&P CNX Nifty , the Australian All Ordinaries and the Hong Kong Hang Seng Index. The concept may be extended well beyond an exchange. The Dow Jones Total Stock Market Index, as its name implies, represents the stocks of nearly every publicly traded company in the United States, including all U.S. stocks traded on the New York Stock Exchange (but not ADRs) and most traded on the NASDAQ and American Stock Exchange.

Weighting of Index or Valuation of Index Price-weighted index such as the Dow Jones Industrial Average, the price of each component stock is the only consideration when determining the value of the index. Thus, price movement of even a single security will heavily influence the value of the index even though the dollar shift is less significant in a relatively highly valued issue, and moreover ignoring the relative size of the company as a whole.
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Market Capitalization Weighted: The equity price is weighted by the market capitalization of the company. Hence each constituent stock in the index affects the index value in proportion to the market value of all outstanding shares. Index = (Current market capitalization) ---------------------------------------- x Base Value (Base Market Capitalization)

Where: CMS = Sum of (current market price * outstanding shares) of all securities in the index BMS = Sum of (market price * issue size) of all securities as on base date. Equal Weighted: The weights are equal and assigned irrespective of both market capitalization or price. Index revision is done periodically taking into consideration the factors mentioned above. The relevant index body makes clear, researched and publicly document -ed rules for this purpose. These rules are applied regularly, to obtain changes to the index set. However, it is ensured that the value of the index does not change significantly after the revision of the index set. Determinants of a Stock Index Following parameters should be taken into picture before one constructs a stock index: Liquidity – Liquidity of stocks as measured by the “impact cost” criterion which determines the cost faced when actually trading the index. For example if the current market price of a stock is Rs 200 and a trader purchases it at Rs 202 (due to involved transaction costs) then the market impact cost is 1% and the stock is considered highly liquid for lower impact cost. EG. Diversification – Diversification, by putting stocks of various sectors that reflect the economy, is used to cancel out stock noise which is essentially the individual stock fluctuations and to reduce investor’s risks. An index must thus have a balanced representation of all sectors.
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Optimum size - More stocks lead to greater diversification but the limiting factor is the size of the index. Increasing number of stocks in an index from 10 to say 30 gives a sharp reduction in risks but increasing the number beyond a point does very little in risk reduction. Further it might lead to addition of illiquid stocks. For example, the optimal size for BSE Sensex is 30. Market Capitalization: The index should include primarily the stocks of companies that have significant market capitalization with respect to the index such that any major change in the price of the stock is reflected in the index. For example in BSE 30 Index, the scrip must have a minimum of 0.5% of the market capitalization of the Index. Averaging - Every stock primarily moves for two reasons: The news about the company and the news about the country. An ideal index is affected only by the latter, that is the news of the economy and the effect of the former is knocked out by proper averaging.
Major International Indices are as follows :

S.No 1 2 3 4 5 6 7 9 10

Country Region China Hong Kong India India Japan Singapore USA USA United Kingdom

Index Shanghai Composite Hang Seng BSE - 30 NSE Nikkei 225 Straits Times
Dow Jones Industria Average

Symbol SC HS Sensex
S&P CNX NIFTY

NIKKEI ST DJIA S&P FTSE

S&P 500 FTSE International (London Stock Exchange),

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Major Asian Indices
Sensex (BSE 30) Country : India The index includes 30 companies which figure in top 100 in terms of market capitalization and are also among the leaders in their industry groups. Presently the following are the constituent companies: ACC, Infosys, ICICI Bank, Dr. Reddy’s Lab, SBI, CIPLA, Zee Telefilms, Nestle India, RPL, RIL, HCL Tech., Bajaj Auto, BHEL, Castrol, BSES, Colgate Palmolive, Hindalco, Grasim, Glaxo, Hero Honda, Gujrat Ambuja Cements, HLL, HPCL, ITC, L&T, MTNL, Ranbaxy, TISCO, TELCO and Satyam. Standard and Poor’s CRISIL NSE Exchange NIFTY Country : India S&P CNX NIFTY is an S&P endorsed Stock Index owned by the India Index Services Ltd. (IISL). It is a highly diversified index, accurately reflecting the overall market conditions and is composed of 50 liquid stocks. It is backed by solid economic research and three extremely respected organizations (NSE, CRISIL and S&P). Shanghai Composite: Country : China The constituents for SSE Composite Index covers all listed stocks of A Group and B Group shares at Shanghai Stock Exchange.The base date for SSE Composite Index is December 19, 1990. The base value was set to 100. The index was launched on July 15, 1991. NIKKEI 225 : Country : Japan The NIKKEI 225 Index is calculated and disseminated by Nihon Keizai Shinbum Inc. It measures the composite price performance of 225 highly capitalized stocks trading on the Tokyo Stock Exchange. It is priceweighted, as opposed to market-cap or fundamental-weighted. Straight times : Country : Singapore The Straits Times Index (STI) comprises of the stocks of 30 representative companies listed on the Singapore Exchange. The index is calculated based on market-value weighted stock market index. HANG SENG : Country : Hong Kong The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the
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main indicator of the overall market performance in Hong Kong. These 45 companies represent about 67% of capitalization of the Hong Kong Stock Exchange TAIWAN – 50 : Country : Taiwan The TWSE Taiwan 50 Index was started on October 29, 2002. The collaboration of Taiwan Stock Exchange Corporation (TWSE) and FTSE International Limited created the first tradable index for the Taiwan stock market. It keeps track of the top 50 companies by total market capitalization.

Major U.S Indices
Dow Jones The Dow Jones Industrial Average (DJIA), which was first published in 1884, is based on a narrow set of stocks and a different calculation methodology. The DJIA is a price-weighted average tracking the stock performance of 30 blue chip companies. While the Dow Jones Industrial Average is adjusted for stock splits and referred to as an index in the financial media, the DJIA measures average price movement only, without regard to market value. As a result, the higher-priced stocks within the DJIA often have a greater effect on the DJIA Index than the lower-priced ones. SP500 The Standard & Poor's 500 is a market-value-weighted index (shares outstanding multiplied by stock price) of 500 stocks that are traded on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and the NASDAQ National Market System. The weightings make each company's influence on Index performance directly proportional to that company's market value. It is this characteristic that has made the Standard & Poor's 500 Index the investment industry's standard for measuring the performance of actual portfolios

Major European Indices
FTSE Country : UK The FTSE Group is a joint venture between the Financial Times and the London Stock Exchange. It is calculated in real-time and published after an
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interval of 15 seconds. FTSE 100 companies correspond to 81% of the market capitalisation of the whole London Stock Exchange. It is the most widely used UK stock market indicator.

CAC Country : France The CAC 40 is a benchmark French stock market index. As name suggests the index comprises of the 40 most significant values among the 100 highest market caps on the Paris Bourse which has now been changed to Euronext Paris.

There are various other Stock indices all over the world but these are some of the most important indices which is looked by every prudent trader of the stock exchange and especially in India these are fairly watched indices.

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