Construction of Stock Sensitivity Index

Liquidity (Impact Cost)

Impact cost < 0.5% during last 6 months, 90% of
observation
Ideal price = (Best Bid/Buy+ Best Ask/Sell)/2
Impact cost = Mark up over ideal price
Float adjusted market capitalization
At least twice of current smallest constituent of Index
Float
Minimum 10% available for trading
Domicile
IPO offering company 3 months instead of 6 months
Timing of Changing
Semi-annual
4 week notice period
Impact Cost

Bid (Buy) Ask (Sell)

Quantity Price Quantity Price

1000 98.00 1000 99.00

2000 97.00 1500 100.00
1000 96.00 1000 101.00
 Impact Cost

Buying 1500 shares

Ideal Price = (98+99)/2 = 98.50
Actual buying price
((1000*99+500*100)/1500) = 99.33
Impact cost
{(99.33-98.50)/98.50}*100 = 0.84%
Stock Price Index
(Base Period)
Share Price Issue Capital Weight
Size ization
A 20.00 4000 80000 0.098
B 60.00 5000 300000 0.366
C 145.00 2000 290000 0.354
D 15.00 10000 150000 0.0183
Total 820000 1.00
Stock Price Index
(Calculation)
Base Period Market Capitalization
820000
Base Period Index
1.000 * 1000 = 1000
Current Market Period Capitalization
880000
Current Index
880000/820000*1000 = 1073
Stock Price Index
(Maintenance Replacement)
No change in Index

It = Mt * M0 *I0
M0 = Mt * (It/I0)
M0 = Mt * I0/It
New base Capitalization
= M0 + M0
= M0 + Mt * (I0/It)
Maintenance Replacement
On June 24
M0 = 195000 (Rs. Cr); Mt = 197500 (Rs. Cr)

It = (Mt/M0)* I0 = 1012.8205

Scrip A (Mcap 1000 Cr) is replaced with Scrip B

(Mcap 900 Cr)
Maintenance Replacement
New Base Capitalization (M*0)
= M0 + Mt *(It/I0)
=195000 + (900-1000)* (1000/1012.8205)
= 194901
Mt = 197500-100 = 197400
It = (197400/194901)*1000 = 1012.82