Ifs U - 2-1
Ifs U - 2-1
Ifs U - 2-1
Introduction
Financial markets are essential pillars of the global economy, acting as organized
platforms where individuals, businesses, and governments can engage in the exchange
of financial assets. These markets are vital for the proper functioning of any economy
because they facilitate the movement of capital.
The financial market ecosystem can be broadly categorized into two main segments:
CS KOMAL KEWALRAMANI Page 1
the capital market and the money market. The capital market is focused on long-term
financial instruments such as stocks and bonds, which are crucial for funding long-term
investments. Companies and governments leverage the capital market to raise
substantial amounts of money needed for large projects with long-term benefits, such
as infrastructure development, business expansion, and research and development
initiatives. In contrast, the money market deals with short-term financial instruments
and addresses the immediate liquidity needs of various market participants. The money
market is vital for managing short-term financial requirements, such as payrolls,
inventory purchases, and other operational expenses. By providing quick access to
funds, the money market ensures that the financial system remains fluid and efficient.
Financial markets also play a critical role in the broader economy by influencing
monetary policy and interest rates. Central banks often engage in the money market to
control money supply and implement monetary policy, affecting overall economic
activity. The interaction between the capital market and the money market helps in
balancing long-term investment needs with short-term liquidity requirements, fostering
a stable and dynamic financial environment.
Meaning
A financial market is essentially a marketplace where buyers and sellers engage in the
trading of financial assets and securities, such as stocks, bonds, currencies, and
derivatives. These markets provide a structured environment for the exchange of these
assets, ensuring that capital flows efficiently from those with surplus funds to those in
need of funds. The main purpose of financial markets is to facilitate the allocation of
resources, which is crucial for supporting economic activities and fostering growth. By
providing platforms for the issuance and trading of financial instruments, financial
markets enable businesses to raise capital, investors to diversify their portfolios, and
governments to finance their operations.
The financial market can be divided into two primary types: the capital market and the
money market, each serving distinct functions and addressing different financial needs.
The capital market is dedicated to the trading of long-term securities, including stocks
and bonds. This market allows companies to raise long-term capital needed for growth
and expansion by issuing equity (stocks) or debt (bonds). Investors in the capital market
can buy and sell these securities, providing a mechanism for the redistribution of capital
based on market conditions and investor preferences. The capital market is further
divided into the primary market, where new securities are issued and sold to investors,
and the secondary market, where existing securities are traded among investors. The
primary market is crucial for initial capital raising, while the secondary market provides
liquidity, enabling investors to buy and sell securities easily.
The money market, on the other hand, deals with short-term debt instruments that
Arbitrage Opportunities
The scope for instant arbitrage exists across different markets and instruments.
Investors can exploit price differences between markets or financial instruments
to make risk-free profits, contributing to the overall efficiency and liquidity of the
markets.
Financial markets are inherently volatile and can be prone to panic and distress
selling. The actions of a limited group of market participants can often lead to
widespread market movements, reflecting the interconnected nature of market
sentiment and behavior.
Negative Externalities
Failures in one segment of the financial markets can have ripple effects on other
segments and even on non-financial markets. This interconnectedness means that
issues in one area can lead to broader economic consequences, making financial
markets sensitive to systemic risks.
Global Integration
The financial markets provide an efficient payment system that facilitates the
smooth transfer of money and financial assets. This function is essential for both
day-to-day transactions and large-scale financial activities, supporting the overall
Information Provision
Financial markets serve as a key source of information about companies and the
economy. They encourage investors to conduct their own inquiries and monitor
the activities of firms, aiding in informed decision-making and efficient stock
trading.
Liquidity Enhancement
Financial markets play a pivotal role in the global economy by facilitating the
exchange of financial instruments and capital. They are categorized into two primary
types:
Money market
Capital market.
Each of these markets serves distinct purposes and caters to different financial needs,
impacting both short-term liquidity and long-term investment strategies.
Money Market
Capital Market
The capital market is another essential component of the financial system, dealing
with long-term securities. Unlike the money market, which focuses on short-term
instruments, the capital market involves the trading of long-term investments such as
equities and debt securities. The primary purpose of the capital market is to mobilize
long-term savings to finance long-term investments, provide risk capital to
entrepreneurs, and encourage broader ownership of productive assets. This market is
further divided into the primary market, where new securities are issued, and the
secondary market, where existing securities are traded. Both markets are
interdependent, with the primary market generating new instruments and the
secondary market providing liquidity for these instruments.
The money market is a sector of the financial market where short-term borrowing
and lending take place, typically involving instruments with maturities of less than
one year. This market is characterized by its high liquidity and the ability to handle
large-denomination transactions efficiently. The money market is crucial for the daily
financial operations of governments, financial institutions, and corporations,
providing a platform for managing short-term funding needs and ensuring stability in
the financial system.
Low Risk: Instruments in the money market, such as Treasury bills and certificates
of deposit, are generally considered low-risk due to their short maturity periods
and the high credit quality of issuers.
CS KOMAL KEWALRAMANI Page 6
Interest Rates: Interest rates in the money market are typically lower compared to
the capital market, reflecting the lower risk and shorter duration of the instruments.
Rates are influenced by central bank policies and economic conditions.
Role in Monetary Policy: The money market plays a crucial role in the conduct
of monetary policy by enabling central banks to manage liquidity and influence
short-term interest rates. It helps in the implementation of policy measures and
stabilization of the financial system.
The organized money market is a segment of the financial system where short-term
borrowing and lending occur, typically involving instruments with maturities of less than
one year. It facilitates the management of liquidity and short-term funding needs for
various participants, including banks, corporations, and governments. Here’s a detailed
look at the key constituents and instruments of the organized money market:
Central Banks: Regulate and manage the money market through monetary
policy tools, such as open market operations and repo agreements.
Corporations: Often use the money market for short-term funding needs and
to manage their cash flow.
Regulatory Bodies
Central Banks: Oversee the money market to ensure stability and liquidity. They
implement monetary policy and provide emergency funding if needed.
Investors
5. Call Money
6. Banker’s Acceptances
The capital market is dedicated to the trading of long-term securities, including equity
(stocks) and debt instruments (bonds). Unlike the money market, which focuses on short-
term financial needs, the capital market is concerned with long-term investments and
capital formation. It plays a vital role in mobilizing savings for productive uses, providing
risk capital, and fostering economic growth.
Higher Risk and Return: Securities in the capital market generally exhibit higher
risk compared to money market instruments due to their longer duration and
sensitivity to economic changes. However, they also offer the potential for higher
returns.
Price Discovery: The capital market facilitates the determination of market prices
for securities based on supply and demand dynamics. This price discovery process
helps in the efficient allocation of capital and resources.
Liquidity: While the capital market provides liquidity through the secondary
market, its liquidity is generally lower compared to the money market. The ease of
buying and selling securities can vary depending on the size and activity of the
Secondary Market: This market deals with the trading of previously issued
securities. It provides liquidity to investors by allowing them to buy and sell
existing securities, thereby facilitating price discovery and enhancing market
efficiency.
Provision of Risk Capital: The market offers equity and quasi-equity instruments
to entrepreneurs and businesses, allowing them to raise capital without incurring
debt. This promotes entrepreneurship and innovation, supports start-ups, and helps
businesses finance new projects and expansions.
Price Discovery: Ensures fair prices for securities through market mechanisms of
supply and demand. This enhances transparency and fairness in the market, helping
investors make informed decisions based on current market conditions.
Liquidity Provision: Offers mechanisms for the buying and selling of securities,
ensuring that investors can convert their investments into cash quickly and
efficiently. This provides confidence to investors and supports market stability and
attractiveness.
Early Beginnings
July 9, 1875: The Native Share and Stock Brokers' Association was established in
Bombay (now Mumbai), marking the beginning of organized securities trading in
India. This association was crucial in formalizing trading practices and setting
standards for the market.
1899: The Bombay Stock Exchange (BSE) acquired its own premises, signaling a
significant development in the formal infrastructure of the Indian capital market.
This provided a dedicated space for trading and helped in managing the growing
number of transactions.
1923: K. R. P. Shroff became the honorary president of the BSE, underscoring the
growing importance of the exchange and its influence in the Indian financial
markets.
CS KOMAL KEWALRAMANI Page 12
1925: The Bombay Securities Contracts Control Act (BSCCA) was enacted. This
legislation provided a regulatory framework for the trading of securities, aiming to
bring order to the market and protect investors.
Pre-Independence Developments
December 1, 1939: The BSE acquired a new building, reflecting its expanding role
and the increasing significance of stock trading in India.
1943: During World War II, forward trading was banned until 1946. This was a
measure to stabilize the market and prevent speculative practices that could lead to
market instability during the war period.
Post-Independence Era
1956: The Securities Contracts (Regulation) Act was introduced, mirroring the
BSCCA. This Act aimed to regulate stock exchanges and provide a legal
framework to ensure transparency and fairness in trading activities.
1957: The BSE was granted permanent recognition by the Indian government,
solidifying its status as a major stock exchange and enhancing its credibility in the
financial markets.
1964: The Unit Trust of India (UTI) was established, introducing the concept of
mutual funds to Indian investors. This development expanded investment options
and provided a new avenue for public participation in the capital markets.
June 29, 1969: The Indian government imposed a ban on forward trading to curb
speculative practices and stabilize the market. This was part of broader efforts to
ensure market stability.
1970s
July 6, 1974: The Dividend Restriction Ordinance was enacted, which limited the
dividends companies could pay out. This led to a sharp decline in stock market
values and demonstrated the impact of regulatory measures on market performance.
1977: Dhirubhai Ambani’s Reliance Textiles made a notable entry into the capital
market, setting a precedent for large-scale public offerings and highlighting the
growing dynamism of the Indian stock market.
1980s
November 1987: The SBI Mutual Fund launched the Magnum Regular Income
Scheme, marking a significant development in the mutual fund industry and
expanding investment opportunities for Indian investors.
April 1988: The Securities and Exchange Board of India (SEBI) was established
to regulate and oversee the capital markets. SEBI's creation was a crucial step
toward enhancing market transparency, protecting investors, and ensuring fair
trading practices.
1990s
January 1992: SEBI received statutory powers, strengthening its role as the
regulator of the capital markets and empowering it to enforce regulations and
oversee market activities.
May 1992: The Harshad Mehta securities scam, one of the largest financial
scandals in Indian history, exposed significant issues in the market and led to
widespread reforms aimed at improving market integrity and investor protection.
May 27, 1992: Reliance Industries became the first Indian company to issue Global
Depository Receipts (GDRs), enabling it to raise capital from international
investors and marking a significant milestone in India's integration with global
financial markets.
October 1993: The Kothari Pioneer Mutual Fund commenced operations as the
first private sector mutual fund, introducing more diversity and choice in
investment options for Indian investors.
June 1994: The National Stock Exchange (NSE) began operations in the wholesale
debt market, marking an important development in market infrastructure and
expanding the range of trading activities.
March 1995: The NSE overtook the BSE in trading volume, reflecting its growing
influence and the success of its electronic trading systems.
April 1995: The National Securities Clearing Corporation Limited (NSCC) was
established to improve the clearing and settlement of trades, enhancing the
efficiency and reliability of the market.
2000s
February 2000: The NSE introduced internet trading, and the BSE Sensex reached
an all-time high of 6,150, reflecting a peak in market activity and the growing role
of technology in trading.
July 9, 2000: The BSE celebrated its 125th anniversary, marking over a century of
stock trading in India and highlighting its long-standing role in the country's
financial markets.
March 2001: The Ketan Parekh scam led to the discontinuation of carry-forward
trades and the implementation of rolling settlements to improve market stability
and prevent future manipulations.
September 28, 2015: The Forward Markets Commission (FMC) merged with
SEBI, extending SEBI’s regulatory oversight to include commodity futures and
enhancing its role in overseeing all financial markets.
Recent Developments
January 23, 2017: The BSE became the first Indian stock exchange to issue an
Initial Public Offering (IPO), which was also listed on the NSE. This milestone
demonstrated the ongoing evolution and modernization of India's capital markets.
The primary market, often referred to as the new issues market, is a crucial segment
of the financial markets where new securities are created and sold to investors for the
first time. This market is fundamental for companies, governments, and other entities
to raise fresh capital for various purposes, such as expanding operations, funding new
projects, or refinancing existing debt. Unlike the secondary market, where previously
Issuance of New Securities: The primary market is the platform for the initial sale
of securities such as equity shares, preference shares, bonds, and debentures. These
securities are offered to the public or selected investors, and the proceeds from the
sale go directly to the issuer.
Raising Fresh Capital: The primary purpose of the primary market is to raise new
capital. Companies, governments, and other entities use this market to obtain the
funds needed for various business activities. This fresh capital can be used for
business expansion, research and development, debt repayment, or other financial
needs.
Instruments Issued: The primary market deals with various types of instruments,
including:
o Equity Shares: Ownership stakes in a company, which entitle shareholders
to voting rights and dividends.
o Preference Shares: A hybrid form of equity that typically offers a fixed
dividend and has priority over common shares in asset liquidation.
o Debentures: Long-term debt instruments that are not secured by physical
assets or collateral.
o Bonds: Debt securities issued by companies or governments, promising to
pay the holder a fixed interest over a specified period.
Pricing Mechanisms:
o Fixed Price Issue: In a fixed price issue, the price at which the securities
will be offered is determined and disclosed in advance.
o Book Building Process: In this process, the price is determined through bids
received from investors. A price band is provided, and investors place their
bids within this range. The final price is set based on the demand generated
during the bidding process.
Issuers: These are the entities that need to raise capital. Issuers can be
corporations, government bodies, public sector undertakings, banks, or financial
institutions. They offer securities in the primary market to mobilize funds for
various purposes.
Investors: Investors are individuals or institutions that purchase the new securities.
Investors in the primary market include retail investors, institutional investors,
mutual funds, insurance companies, pension funds, and hedge funds.
Regulatory Bodies: Regulatory bodies like the Securities and Exchange Board of
India (SEBI) oversee the primary market in India. SEBI sets the rules and
regulations governing the issuance of securities to protect investors and ensure
transparency and fairness in the market.
Price Discovery: In the primary market, the price of new securities is often
determined through mechanisms like the book-building process. This process of
price discovery is crucial for setting a fair market value for the securities.
Access to Capital: The primary market provides companies with access to capital
that is essential for growth, expansion, and other business activities. It enables
companies to raise large amounts of funds without relying solely on internal cash
flows or bank loans.
Economic Growth: The funds raised through the primary market are often used
for productive purposes, such as expanding businesses, creating jobs, and
developing infrastructure. This contributes to overall economic growth and
development.
High Costs: Issuing securities in the primary market can be expensive due to the
costs associated with underwriting, legal fees, marketing, and compliance. Smaller
companies may find these costs prohibitive, limiting their access to the market.
The primary market is where companies and other entities raise capital by issuing new
securities for the first time. These securities can be in the form of equity, debt, or other
financial instruments, and their issuance allows the issuer to raise funds for various
purposes, such as expansion, debt repayment, or new projects. The types of primary
issues can be broadly categorized based on the nature of the offering and the target
investors. Below are the different types of primary issues:
A. Public Issue
An Initial Public Offering (IPO) marks the first time an unlisted company offers its
shares to the public. Through an IPO, a privately held company transitions to a
publicly traded entity, thereby opening its ownership to public investors. The process
involves the issuance of new shares or the sale of existing shares by the current
shareholders. The primary objectives of an IPO include:
Raising Capital: The funds raised can be used for expansion, debt repayment,
research and development, or other corporate purposes.
Liquidity for Founders and Early Investors: An IPO provides an opportunity
for founders, early investors, and employees to liquidate some or all of their
holdings.
Market Visibility and Prestige: Being publicly traded enhances the company's
profile and can lead to increased business opportunities.
Process:
Types of FPOs:
Dilutive FPO: New shares are issued, which dilutes the ownership of existing
shareholders.
Non-Dilutive FPO: Existing shareholders (such as promoters) sell their shares,
leading to no dilution of ownership.
Process:
Similar to an IPO, but generally quicker as the company is already listed and has
a track record of compliance with regulatory norms.
B. Rights Issue
A Rights Issue is a method by which a company offers additional shares to its existing
shareholders in proportion to their current holdings, usually at a discounted price. This
type of issue allows companies to raise capital without diluting the ownership structure
since the new shares are offered first to the current shareholders.
Key Features:
Objectives:
Strengthening the Balance Sheet: Companies may use the proceeds to pay down
debt, finance new projects, or enhance working capital.
CS KOMAL KEWALRAMANI Page 20
Rewarding Loyal Shareholders: By offering shares at a discount, the company
provides existing shareholders with an opportunity to increase their holdings at a
favorable price.
Process:
Announcement: The company announces the rights issue, specifying the ratio,
price, and record date.
Subscription Period: Shareholders decide whether to exercise their rights within
the specified period.
Allotment: Shares are allotted based on the subscription, with any unsubscribed
shares often being offered to other investors or underwriters.
C. Private Placement
Private Placement involves the sale of securities directly to a small, select group of
investors, such as financial institutions, high-net-worth individuals, or other qualified
investors. This method is typically faster and less expensive than public offerings, as it
involves fewer regulatory requirements.
For unlisted companies, private placement serves as a way to raise capital without going
through the complex and time-consuming process of a public offering. This type of
issuance is often used by companies at various stages of development, including startups
and mature businesses.
Features:
Select Investors: The securities are sold to a pre-identified group of investors, rather
than the general public.
Confidentiality: The terms of the offering and the identity of the investors can often
remain confidential.
Flexibility: Companies have the flexibility to negotiate terms directly with investors,
including pricing, maturity, and covenants.
Process:
2. Preferential Issue
Key Features:
Strategic Investment: Preferential issues are often made to investors who can add
strategic value, such as industry expertise or access to markets.
Premium Pricing: Shares may be issued at a price higher than the current market
price, reflecting the strategic value of the investment.
Regulatory Compliance: Companies must comply with specific guidelines set by
SEBI, including disclosures, pricing norms, and lock-in periods for the allotted
shares.
Objectives:
Process:
Board Approval: The board of directors must approve the preferential issue,
followed by shareholder approval.
Regulatory Filings: Necessary filings are made with SEBI and stock exchanges.
Allotment: Shares are allotted to the identified investors, and the proceeds are
utilized as per the company’s objectives.
Key Features:
Objectives:
Process:
Board Approval: The board of directors must approve the QIP, and the company
must comply with SEBI regulations.
Investor Engagement: The company engages with institutional investors to gauge
interest and determine pricing.
Issuance and Allotment: Securities are issued and allotted to the qualified
institutional buyers, with the funds being used for the company’s stated objectives.
Marketability: Securities can be easily bought and sold in the secondary market,
enhancing their marketability and attractiveness to investors.
Individual Investors: Retail investors who buy and sell securities for personal
investment purposes.
Brokers and Dealers: Intermediaries who facilitate the buying and selling of
securities on behalf of investors.
Market Makers: Firms or individuals that provide liquidity by being ready to buy
or sell securities at publicly quoted prices.
Regulatory Bodies: Organizations like the Securities and Exchange Board of India
(SEBI) that oversee and regulate market activities to protect investors and maintain
market integrity.
Enhanced Liquidity: The ability to buy and sell securities quickly enhances their
attractiveness to investors.
Information Asymmetry: Not all investors have access to the same information,
which can lead to unfair advantages and market manipulation.
Capital Allocation: The secondary market plays a pivotal role in the efficient
allocation of capital within the economy. When investors trade securities in the
secondary market, capital flows from entities where it may be less effectively
utilized to those where it can be put to more productive use. This process is
facilitated by the price mechanism, where the value of securities is determined by
market forces based on the perceived future earnings and growth potential of the
issuing entities. As investors sell securities in companies or sectors with lower
expected returns and reinvest in those with higher potential, capital is reallocated
in a way that supports economic growth. This function of the secondary market is
particularly important because it ensures that resources are directed toward
enterprises that are most likely to use them efficiently, thus contributing to overall
economic development. In essence, the secondary market serves as a conduit
through which the economy's scarce financial resources are optimally distributed,
enabling the most promising companies and sectors to thrive.
The secondary market in India comprises various recognized stock exchanges that
facilitate the trading of securities. These stock exchanges are organized under
different legal and structural forms, reflecting the diversity in their governance and
operational frameworks.
Organizational Forms:
Demutualized Exchanges: The OTCEI and the National Stock Exchange (NSE)
are examples of demutualized exchanges, where ownership and management are
separated from the trading rights. In these exchanges, the separation ensures that
the exchange operates independently, focusing on its responsibilities without any
conflict of interest arising from trading activities.
Role of Brokers:
o Types of Brokers: Brokers in the Indian stock exchanges are categorized into
three classes: proprietary, partnership, and corporate. Historically, most
brokers in older exchanges operated as proprietors, while newer exchanges,
like the NSE and OTCEI, have seen a shift towards corporate membership.
o Evolution and Standards: Over time, many brokers have transitioned from
proprietary or partnership firms to corporate entities. Both the NSE and OTCEI
have set strict standards for member admission, focusing on capital adequacy,
track record, education, and experience to maintain high standards in broking
services.
o Registration Fees: Brokers are required to pay an annual registration fee, with
the amount varying based on their turnover. If a broker's turnover exceeds ₹1
crore, additional fees are levied. After five years from initial registration, a
broker must pay a fee for a block of five financial years.
Industry Consolidation:
Stock market indices are fundamental tools in the financial markets, serving as
indicators of market sentiment and economic health. These indices reflect the overall
behavior of specific market segments, providing insights into daily fluctuations in stock
prices and the broader market direction. In this comprehensive overview, we will
explore the definition, importance, functions, characteristics, and methodologies for
calculating stock market indices, along with a focus on major global and Indian indices.
A stock market index is a statistical measure that tracks the performance of a specific
group of stocks, representing a particular segment of the market. It acts as a barometer
of market behavior, indicating day-to-day fluctuations in stock prices and providing a
snapshot of the broader market's direction.
Importance:
Market Sentiment: Stock market indices provide valuable insights into the
average share price in the market, reflecting the overall sentiment of investors and
traders.
Market Sentiment:
Economic Indicator:
Investment Benchmark:
o A good index includes scrips with high market capitalization and liquidity,
ensuring that the index reflects the market's investible opportunities
accurately.
o High market capitalization ensures that the index is representative of the
largest and most influential companies in the market.
o Liquidity ensures that the included stocks are actively traded, making the
index a reliable indicator of market performance.
Stock market indices serve as benchmarks that reflect the overall performance of the
stock market or specific sectors within it. The methodologies used to calculate these
CS KOMAL KEWALRAMANI Page 30
indices are crucial for accurately representing market movements. Here, we delve into
the different methodologies used to calculate stock market indices, with a focus on
Indian indices as examples.
In this method, adjustments are made to limit the influence of the largest stocks,
ensuring that no single stock or group of stocks dominates the index. This method is
used when an index needs to represent a broader market without being overly influenced
by the largest companies.
3. Price-Weighted Index
In a Price-Weighted Index, the index is calculated by adding the prices of the constituent
stocks and then dividing by a divisor. The stocks with higher prices have a more
significant impact on the index, regardless of the company's size or market
capitalization.
Example: The Dow Jones Industrial Average (DJIA) in the United States is the most
famous price-weighted index. While there is no direct Indian equivalent, the concept is
similar to certain historical indices in India, where high-priced stocks had more
influence.
4. Equal-Weighted Index
An Equal-Weighted Index assigns equal weight to all constituent stocks, ensuring that
each stock has the same influence on the index movement, regardless of its price or
market capitalization.
Example: The Value Line Composite Index in the United States is an example of an
equal-weighted index. Though not widely used in India, this methodology highlights an
alternative approach to index calculation.
India's stock market is home to several key indices that serve as barometers of the
country's economic and financial health. These indices are crucial for investors,
policymakers, and economists alike.
1. BSE Sensex
Overview:
Launched: 1986
Constituents: 30 of the largest and most actively traded stocks on the Bombay Stock
Exchange (BSE).
Base Year: 1978-79
Significance: The Sensex is often seen as the pulse of the Indian stock market,
reflecting the overall market sentiment and economic outlook.
Calculation Methodology:
Impact:
Market Indicator: The Sensex is a leading economic indicator, often used to gauge
the health of the Indian economy. Movements in the Sensex are closely watched by
investors and policymakers alike.
Investor Benchmark: It serves as a benchmark for portfolio performance, with
many mutual funds and ETFs tracking its performance.
2. NSE Nifty 50
Overview:
Launched: 1996
Constituents: 50 of the largest and most liquid stocks listed on the National Stock
Exchange (NSE).
Base Year: 1995
Significance: The Nifty 50 is another critical index in India, providing a
comprehensive view of the Indian stock market.
Calculation Methodology:
Full Market Capitalization: Initially, Nifty 50 used the full market capitalization
method, similar to the Sensex.
Free-Float Adjustment: It also uses the free-float market capitalization method,
reflecting only the freely available shares for trading.
Liquidity and Impact Cost: Stocks in the Nifty 50 are selected based on their
liquidity and the impact cost, ensuring that the index accurately represents the most
traded stocks.
Impact:
Benchmark Index: The Nifty 50 is widely used as a benchmark for mutual funds,
ETFs, and other financial products. It represents a significant portion of the total
market capitalization of the NSE.
Global Recognition: The Nifty 50 is internationally recognized and tracked by
investors worldwide, often used in global comparisons.
d. BSE Bankex
Overview: Tracks the performance of the leading banking sector stocks listed on the
BSE.
Significance: It is a sectoral index providing insights into the health of the banking
sector, which is a key driver of the Indian economy.
e. Nifty IT Index
Global stock market indices are essential for tracking the performance of different
markets and sectors worldwide. Below are some of the most significant global indices:
o Overview: One of the oldest and most widely watched indices in the USA,
comprising 30 large-cap stocks. It is a price-weighted index.
o Significance: The DJIA serves as a barometer for the overall health of the
U.S. stock market and economy.
o Significance: The S&P 500 is widely regarded as the best single gauge of the
U.S. equities market, used as a benchmark by investors and fund managers.
FTSE 100:
o Overview: A market-capitalization-weighted index of the largest 100
companies listed on the London Stock Exchange.
MSCI Indices:
o Overview: These indices include a range of global and regional indices, such
as the MSCI World Index, MSCI EAFE (Europe, Australasia, and Far East),
and MSCI Emerging Markets Index (EMF).