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Broadex
  

 

written in 2006: No major correction since then, in the contents
 
 
Using just 30 or 50 Scrips as a measuring scale for the movement of the Share Market is just not right 
   
  The Market Crash across the World on 26 and 27th July 2007, notionally wiping out about a Billion Dollars, emphasises the need for Broad basing the share Market indices. 

 
 
Suggestion
   
  The poorly calibrated measuring scale will always lead to lengthy post mortem reports and analysis having near zero value. That is my observation after starting investing in shares from January 2006

 Perhaps it is time to review the unwanted features in Indian Market indices, Sensex and Nifty. Why have a measuring scale that can lead to distorted and wayward assessments ? 

Dow Jones also has 30 stocks. We just do not have to follow that. We can use our brains to better our system

 
 
Retail Investors / small investors can be misled / misdirected / misguided
   
  Sensex and Nifty account for about 52% and 57% of the market capitalisation. Over 6000 Stocks are listed in the Exchanges. So they are not truly reflective of the widened Indian market. With Sensex and Nifty, we make a sweeping assessment of the complete market - and we deal with money. Is it fair and meaningful ? 

The various comments in the TV channels by so called experts, Mutual Funds and FII Investors as well as the print media is based on Sensex and Nifty. In my view, it does lead to distorted and convenient interpretations. You also wonder whether the views are in public interest or just in the personal interest of select few

 

Advertisement panels on site:  I do not endorse any other commercial skin / hair product as I do not even retail my own invention, Swapna, in this site. Effective 28th July 2008, I have gradually released this site  to Google to place their advertisements panels. This is to generate some revenue - if they do not clash with my views. These mechanically placed advertisements can be reviewed only after September 5, 2008

 

Sensex weightages needs review - The figures below confirm that
   
The table below mentions the sectorial weightage as per 30 BSE Sensex scrips and the 50 Nifty Scrips on 13-11-2007. If sectors like Textile, Mining etc are unrepresented, there is disproportionate excess weightage for IT and Petrochemicals - it just does not make sense to me
   
  Can Reliance / RIL skew the Sensex ? It has the potential: Sensex down if RIL is down. To keep it up, RIL has to go up / can go up / can be manipulated ?
 
 
Sensex 
Nifty 
Industrial Sectors
Nos
Names
 Weightage 
Nos
Names
Weightage
             
Petroleum / RIL 2 RIL, ONGC 19.36 7 RIL, ONGC,RPL,BPCL, HPCL, IOC and GAIL 24.88
             
Banks 3 SBI, HDFC and ICICI 17.83 4 SBI, HDFC, ICICI and PNB 9.54
             
Capital Goods  2 L&T, BHEL 12.6 3 L&T, BHEL, Siemens 9.06
             
Infotech 4 Infosys, TCS, Satyam, Wipro 10.64 5 Infosys, TCS,Satyam, Wipro & HCL 9.24
     
 
      
Telecom 2 Bharti, R.Com 8.34 3 Bharti, R.Com MTNL 10.18
             
sub total  13     22    
             
Metals 2 Tata Steel, Hindalco 4.72 5 Tata Steel, Hindalco, Sail, Sterlite and Nalco 8.76
             
Power 2 REL, NTPC 5.14 5 REL, NTPC, ABB, Tata Power, Suzlon 11.96
             
Cements 3 ACC, Ambuja, Grasim 3.96 3 ACC, Ambuja, Grasim 2.96
             
FMCG 2 HUL, ITC 5.43 2 HUL, ITC 3.45
             
Auto 4 Bajaj, M&M, Maruti and Tata 4.58 5 Bajaj, M&M, Maruti, Tata and Hero Honda 8.42
             
Medical / Pharma 3 Cipla, Reddy, Ranbaxy 2.19 5 Cipla, Reddy, Glaxo, Ranbaxy,  Sun Pharma 2.19
             
Rest / Misc 1 HDFC Housing 5.08 3 HDFC Housing, Unitech and Zee 4.49
             
Total 30   99.87 50   99.53
             
Note: There could be minor errors in calculating the percentages. The idea was to get a clear
Summary picture. Secondly, this should suffice for the needs of this page

 
 
Account the following in a new scale, say Broadex
   
  1.  The new indices be broad based to have about 100 or 200 Scrips representing over 80% of the total market Capitalisation.

2.  It would then be more representative of the market than Sensex / Nifty. Perhaps, it can also help reduce the Volatality

3.  The sectoral weightage be in accordance with their Sales / production position in the Manufacturing Sector or GDP. .

4.  Market Capitalisation is a notional figure that has validity only during the Non Trading hours !  Sales figures and not mere Market Capitalisation figures be the criteria for selection of a scrip in a particular sector or use the combination. Let it be made more meaningful. [ Mukesh Ambani's RIL can alter the sensex by 12% - so, why not a separate index for the R stocks ! Sensex and Nifty figures got skewed in October 2007 due to shares having Reliance in names ]

5.  20% of the weightage be alloted to Medium caps in the broadex in a suitable way, if possible. Small and Medium Industries account for, perhaps over 40% of the general production / GDP in general and 99% of the traded shares

   

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Likely Benefits from  Broadex - The advantages that I perceive / desire for Broadex are as under
   
  1]    Fund Managers, be they Mutual Funds or FIIs benchmark their performance against the Sensex. And there are large Operators in share Market.

A narrow and small index, prone to sudden large inflow or outflow, will lead to surge or fall of the share prices. It is these big guys, who can theoretically gain more on such occasions.

2]    FIIs, specially foreign based operators, do not have to view India with this artificially contracted lens. The Mutual Funds also, place large proportion of their funds in Sensex scrips as they are highly visible. Broadex can reduce the mob mentality.

3]    'Deliberate manipulation by some persons can be reduced, if not avoided totally 

4]   Retail Investors:

Broadex would be more helpful to retail / individual investors than sensex Nifty with above changes.Inflow: If the Public gains confidence, they would also put more money in Mutual Funds. 

The skewed run of the Sensex with valuations unsupported by Fundamentals was one factor relevant to the Market Crash in May 2006.

Persons more experienced than me, can develop this idea of mine, in width and depth.

 
 
Why Change ?
   
 
To help The Neglected and Ignored Segment - An average, employed Indian
   
  In a vast country like India, with population reaching 110 Crores / 1100 Millions, there are only about 70 Million Demat accounts 

Should this not be taken as a basic fact to account and provide better service and clarity to the people. Does the share market serve the common retail investor ? No

 

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