Basic stock market info which advanced readers can skip.
Ever wondered why your portfolio goes up while the Sensex/NIFTY are flat? Or why your portfolio does not rise in sync with the market? It might be because you are comparing it with the wrong basket/index.
BSE Sensex: represents a basket of 30 Large cap shares
S&P CNX NIFTY: represents a basket of 50 large cap shares. (about 41% of the market volume and 56% of the total market capitalization
CNX Nifty Junior: 50 most liquid stock in the market (which are not part of the NIFTY) They represent about 9% of the market capitalization and 14% of the trading volumes.
CNX IT Index: index for 20 IT stocks (96% of the market capitalization and 91% of the transaction value)
CNX Bank Index: 12 top banks (74% of the trades, 79% of the market cap)
CNX 100: top 100 stocks(66% of the market cap and 56% of the trades) for all practical purposes you can consider it as a sum of NIFTY + Nifty Junior.
S&P CNX Defty: (used only by FII) it accounts for dollar fluctuations and the nifty fluctuations… basically the value of NIFTY stocks in USD.
S&P CNX 500: top 500 companies (90% of the stock market capitalization and 80% of all trades)
CNX Midcap: 100 midcap companies. (market capitalization of the range of 1000 to 5000 cr INR)
Nifty Midcap 50: 50 midcap companies.
Now the question arises how to choose the appropriate index:
1) See if your stock is a part of any index. If so, then that index is the best choice.
2) In case of the stock being in multiple index, then choose BSE over NIFTY and NIFTY over Bank/IT index.
3) If it does not belong to any index, then see which is the core area of business and fit it accordingly.
4) otherwise check its market capitalization. i.e.
a. if it is more than 5000 cr, then its best to put it with Nifty/Sensex.
b. if between 1k to 5k crore, then choose the midcap index.
5) If it is a small cap (<1000 cr) and does not fit in any sector index too, then as a rule of thumb expect the stock to give twice the return of Sensex/NIFTY. If it does not, then you are probably taking too much risk for no additional returns.