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2012 ICSA GS Indian Economics Lecture 6


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2012 ICSA GS Indian Economics Lecture 6

  1. 1. ICSA/CSE-2012/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #6 1 Stock Exchanges and Stock Indices National and InternationalStock MarketA stock market / share market is a public market for the trading of company stock andderivatives at an agreed price; these are securities listed on a stock exchange as well asthose only traded privately. The size of the world stock market was estimated at about$36.6 trillion US at the beginning of October 2008. The total world derivatives market hasbeen estimated at about $791 trillion face or nominal value, 11 times the size of the entireworld economy.Brief History of Stock Market:In 12th century France the courratiers de change were concerned with managing andregulating the debts of agricultural communities on behalf of the banks. Because thesemen also traded with debts, they could be called the first brokers. In 1602, the Dutch EastIndia Company issued the first share on the Amsterdam Stock Exchange. It was the firstcompany to issue stocks and bonds. The Amsterdam Stock Exchange is also said to havebeen the first stock exchange to introduce continuous trade in the early 17th century.There are now stock markets in virtually every developed and most developing economies,with the worlds biggest markets being in the United States, United Kingdom, Japan, India,China, Canada, Germany, France and the Netherlands.Stock market crash:A stock market crash is often defined as a sharp dip in share prices of equities listed on thestock exchanges. In parallel with various economic factors, a reason for stock marketcrashes is also due to panic and investing publics loss of confidence. Often, stock marketcrashes end speculative economic bubbles.There have been famous stock market crashes that have ended in the loss of billions ofdollars and wealth destruction on a massive scale. An increasing number of people areinvolved in the stock market, especially since the social security and retirement plans arebeing increasingly privatized and linked to stocks and bonds and other elements of themarket. There have been a number of famous stock market crashes like the Wall StreetCrash of 1929, the stock market crash of 1973–4, the Black Monday of 1987, the Dot-combubble of 2000, and the Stock Market Crash of 2008.One of the most famous stock market crashes started October 24, 1929 on BlackThursday. Another famous crash took place on October 19, 1987 – Black Monday.
  2. 2. ICSA/CSE-2012/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #6 2Stock Market Indices:InternationalBBC Global 30 - world stock market index of 30 of the largest companies by stock marketvalue in Europe, Asia and the Americas.iShares MSCI EAFE Index (EFA) - provides investment results generally equivalent topublicly traded securities in the European, Australasian and Far Eastern markets.Maintained by Morgan Stanley Capital International.MSCI World - free-float weighted equity index. Index includes stocks of all the developedmarkets. Common benchmark for world stock funds.S&P Global 1200 - global stocks index covering 31 countries and around 70 percent ofglobal market capitalization.United StatesAMEX Composite - composite value of all of the stocks traded on the American StockExchange.Dow Jones Indexes - leading global index provider.Dow Jones Industrial Average - one of the most widely quoted of all the market indicators.Consists of 30 of the largest publicly traded firms in the U.S.Dow Jones Wilshire 5000 - designed to track the performance of all publicly tradedcompanies based in the U.S.NASDAQ Composite - broad market index of all of the common stocks and similarsecurities traded on the NASDAQ stock market.NYSE Composite - covers all common stocks listed on the New York Stock Exchange.Russell Indexes - leading U.S. equity index family for institutional investors.Russell 3000 Index - measures the performance of the largest 3000 U.S. companiesrepresenting approximately 98% of the investable U.S. equity market.S&P 500 - stock market index containing the stocks of 500 Large-Cap corporations.Comprises over 70% of the total market cap of all stocks traded in the U.S. Owned byStandard & Poors.AfricaEgyptCase 30 - index of the Cairo & Alexandria Stock Exchange; includes the top 30 companiesin terms of liquidity and activity.MoroccoMASI Index - stock index of the Casablanca Stock Exchange.South AfricaJohannesburg All Share Index
  3. 3. ICSA/CSE-2012/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #6 3Asia and PacificS&P ASIA 50AustraliaAll Ordinaries - index of shares listed on the Australian Stock Exchange (ASX).S&P/ASX 200ChinaSSE Composite - index of all listed stocks (A shares and B shares) at Shanghai StockExchange.Hong KongHang Seng Indexes - record daily changes of the largest companies of the Hong Kongstock market (represent about 67% of capitalization of the Hong Kong Stock Exchange).IndiaBSE SENSEX 30 - includes the 30 largest and most actively traded stocks on the BombayStock Exchange.S&P CNX Nifty - index for 50 large companies on the National Stock Exchange of India.IndonesiaJSX Composite - index of all stocks traded on the Jakarta Stock Exchange.JapanNikkei 225 - stock market index for the Tokyo Stock Exchange.MalaysiaFTSE Bursa Malaysia IndexNew ZealandNZX 50PakistanKSE 100 - index acting as a benchmark to compare prices on the Karachi Stock Exchange.PhilippinesPSEi Index - index acting as a benchmark to compare prices on the Karachi StockExchange.SingaporeST IndexSouth KoreaKOSPI - index of all common shares on the Korean Stock Exchanges.TaiwanTSEC - capitalization-weighted index of all listed common shares traded on the TaiwanStock Exchange.
  4. 4. ICSA/CSE-2012/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #6 4CanadaS&P/TSX Composite - index of the stock prices of the largest companies on Toronto StockExchange.EuropeDow Jones Euro Stoxx 50 - free-float market capitalization-weighted index of 50 Eurozonestocks. Provides a blue-chip representation of Supersector leaders in the Eurozone.FTSEurofirst Index Series - provides pan-European indices. Joint product of FTSE Group,the leading global index provider, and Euronext, an integrated cross border Europeanexchange.FTSEurofirst 300 Index - free-float capitalization-weighted price index. Measures theperformance of Europes largest 300 companies by market capitalization. Covers 70% ofEuropes market cap.OMX Baltic Index - covers stock exchanges in Estonia, Latvia and Lithuania.OMX Nordic 40 - market value-weighted index of the 40 most-traded stock classes ofshares in Copenhagen, Helsinki, Reykjavik and Stockholm.S&P Europe 350 - free float market cap weighted index. Covers at least 70% of Europeanequity market capitalization.BelgiumBEL20Czech RepublicPX IndexDenmarkOMX Copenhagen 20FinlandOMX Helsinki 25FranceCAC 40 - contains 40 stocks selected among the top 100 market capitalisation and themost active stocks listed on Euronext Paris.GermanyDAX - measures the performance of the Prime Standard’s 30 largest German companies interms of order book volume and market capitalization.IrelandISEQ 20 - represents the 20 most liquid and largest capped equities quoted on the IrishStock Exchange.ItalyS&P/MIB Index - capitalization weighted index developed by S&P and Borsa Italiana.
  5. 5. ICSA/CSE-2012/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #6 5NetherlandsAEX Index - index of Euronext Amsterdam, consists of the 25 most active securities in theNetherlands.PolandWarsaw Stock Exchange WIG IndexPortugalPSI-20RussiaMICEX Index - capital-weighted price index of the 30 major and most liquid Russian stockstraded at the Moscow Interbank Currency Exchange.RTS Index - index of 50 Russian stocks traded on the RTS Stock Exchange.SpainIBEX 35SwedenOMX Stockholm 30 IndexSwitzerlandSwiss Market Index (SMI) - includes the twenty largest and most liquid SPI stocks;represents about 85% of the free- float market capitalization of the Swiss equity market.United KingdomFTSE 100 Index (Financial Times Stock Exchange Index) - capitalization-weighted index ofthe 100 most highly capitalized companies traded on the London Stock Exchange.Middle EastIsraelTA-25 - index tracks the prices of the shares of the 25 companies with the highest marketcapitalization on the Tel-Aviv exchange.JordanASE Market Capitalization Weighted IndexOmanMSM 30South AmericaiShares S&P Latin America 40 Index (ILF)ArgentinaMERVAL - index of the Buenos Aires Stock Exchange.BrazilBovespa Index - index of about 50 stocks that are traded on the Sao Paulo StockExchange.
  6. 6. ICSA/CSE-2012/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #6 6MexicoIndice de Precios y Cotizaciones (IPC) - index of 35 stocks traded on the Bolsa Mexicana deValores.Bombay Stock Exchange: Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage of over 136 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers Association" in 1875. BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act (SCRA) 1956. It migrated from the open out-cry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of worlds prominent exchanges, Deutsche Börse and Singapore Exchange, as its strategic partners. Over the past 136 years, BSE has facilitated the growth of the Indian corporate sector by providing it with cost and time efficient access to resources. There is perhaps no major corporate in India which has not sourced BSEs services in raising resources from the capital market. Today, BSE is the worlds number 1 exchange in terms of the number of listed companies and the worlds 5th in handling of transactions through its electronic trading system. The companies listed on BSE command a total market capitalization of USD Trillion 1.06 as of July, 2009. BSE reaches to over 400 cities and town nation-wide and has around 4,937 listed companies, with over 7745 scrips being traded as on 31st July 09. The BSE Index, SENSEX, is Indias first and most popular stock market benchmark index. Sensex is tracked worldwide. It constitutes 30 stocks representing 12 major sectors. The SENSEX is constructed on a free-float methodology, and is sensitive to market movements and market realities. Apart from the SENSEX, BSE offers 23 indices, including 13 sectoral indices. It has entered into an index cooperation
  7. 7. ICSA/CSE-2012/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #6 7 agreement with Deutsche Börse and Singapore Stock Exchange. These agreements have made SENSEX and other BSE indices available to investors across the globe. Moreover, Barclays Global Investors (BGI), at Hong Kong, the global leader in ETFs through its iShares® brand, has created the exchange traded fund (ETF) called iShares® BSE SENSEX India Tracker which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market. The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 359 cities in India. In February 2001, BSE introduced the worlds first centralized exchange-based Internet trading system, This initiative enables investors anywhere in the world to trade on the BSE platform. Surveillance: BSEs On-Line Surveillance System (BOSS) monitors on a real-time basis the price movements, volume positions and members positions and real- time measurement of default risk, market reconstruction and generation of cross market alerts.Scrip-wise Weights in SENSEX: Weight in Index Company (%) RELIANCE 12.74 INFOSYS TECH 10.20 ICICI BANK L 7.92 LARSEN & TOU 6.77 HOUSING DEVE 5.21 I T C LTD 5.10 HDFC BANK LT 5.04 STATE BANK O 4.50 ONG CORP LTD 3.77 TCS LTD. 3.55 BHEL 3.30
  8. 8. ICSA/CSE-2012/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #6 8 BHARTI ARTL 3.06 TATA STL 3.00 STERLITE IN 2.43 HIND UNI LT 2.03 NTPC LTD 1.99 TATA MOTORS 1.82 HINDALCO IN 1.80 MAHINDRA & M 1.75 MARUTISUZUK 1.71 TATA POWER 1.67 WIPRO LTD. 1.63 GRASIM INDUS 1.48 HEROHONDA M 1.42 JAIPRAK ASSO 1.27 REL INFRA 1.15 SUN PHARMACE 1.02 DLF LIMITED 0.98 REL COM LTD 0.91 ACC LTD 0.79S&P CNX Nifty:S&P CNX Nifty is a well diversified 50 stock index accounting for 23 sectors of theeconomy. It is used for a variety of purposes such as benchmarking fund portfolios,index based derivatives and index funds.S&P CNX Nifty is owned and managed by India Index Services and Products Ltd.(IISL), which is a joint venture between NSE and CRISIL. IISL is Indias firstspecialised company focused upon the index as a core product. IISL has aMarketing and licensing agreement with Standard & Poors (S&P), who are worldleaders in index services. The total traded value for the last six months of all Nifty stocks is approximately 44% of the traded value of all stocks on the NSE Nifty stocks represent about 63% of the Free Float Market Capitalization as on Dec 31, 2010. Impact cost of the S&P CNX Nifty for a portfolio size of Rs.50 lakhs is 0.06%. S&P CNX Nifty is professionally maintained and is ideal for derivatives trading
  9. 9. ICSA/CSE-2012/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #6 9SEBI:Securities and Exchange Board of India was established on April 12, 1992 in accordancewith the provisions of the Securities and Exchange Board of India Act, 1992. The Preambleof the Securities and Exchange Board of India describes the basic functions of theSecurities and Exchange Board of India as “… protect the interests of investors insecurities and to promote the development of, and to regulate the securitiesmarket and for matters connected therewith or incidental thereto” SEBI isheadquartered in the popular business district of Bandra-Kurla complex in Mumbai, andhas Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata,Chennai and Ahmedabad.Chairmen of SEBI:Shri U. K. Sinha, February 18 2011—till dateShri C.B.Bhave Feb, 2008—February 17, 2011Shri M.. Damodaran February 18, 2005 to February 18, 2008Shri G. N. Bajpai February 20, 2002 to February 18, 2005Shri D. R. Mehta 21, 1995 to February 20, 2002Shri S. S. Nadkarni January 17, 1994 to January 31, 1995Shri G. V. Ramakrishna August 24, 1990 to January 17, 1994Dr. S. A. Dave April 12, 1988 to August 23, 1990Derivative:A security whose price is dependent upon or derived from one or more underlyingassets. The derivative is a contract between two or more parties. Its value isdetermined by fluctuations in the underlying asset like commodities, bonds, stocks,etc