What is Nifty and What is your Target for Nifty ?

some details as per www.nseindia.com

 

S&P CNX Nifty is a well-diversified 50 stock index accounting for 24 sectors of the economy. It is
used for a variety of purposes such as benchmarking  fund portfolios, index based derivatives,
structured products, ETFs and index funds.

S&P CNX Nifty is based upon solid economic research and is well respected internationally as a
pioneering effort in better understanding how to make a stock market index.

Highlights:
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 India’s first specialized company focused upon
the index as a core product. IISL has a licensing and marketing agreement with Standard and
Poor’s (S&P), who are world leaders in index services. 
Market Representation:
S&P CNX Nifty stocks represent about 63.55% of the total free float market capitalization of the
universe of the stocks traded on NSE as on September 30, 2011.

Diversification:
S&P CNX Nifty is a diversified index, accurately reflecting overall market conditions. The reward to-risk ratio of S&P CNX Nifty is higher than other leading indices, making it a more attractive
portfolio hence offering similar returns, but at lesser risk.

Liquidity:
Market impact cost is the best measure of the liquidity of a stock. It accurately reflects the costs
faced when actually trading an index. For a stock to  qualify for possible inclusion into the S&P
CNX Nifty, it has to reliably have market impact cost of below 0.50 % when doing S&P CNX Nifty
trades of Rs. 20 million.

 

For more about the details you can download this file

 

Now over the last many weeks people have been trying to make a guess on where would Nifty go over the next 3-6 months which is also now being considered as a crucial time.

 

The best part is everybody is ready with a NIFTY target on downside but if i were to ask them about any stock and levels for then people are not ready with an answer. As a matter of fact Nifty has no existence and its just a statistic !!!

 

So what i suggest is let everyone of us come out with a possible target price in best/worst and panic level for each of the stock in Nifty 50. After this we would be able to get a fair idea of where Nifty should be in either of the cases.

 

Attached below is a file of Nifty weightages and price as of Dec 9 – 2011.

 

So how do we do it.

 

1) All one needs to do is change the expected price to your estimate on the stock in worst case. For example – If you think Reliance can go to 600 in panics – then change expected price to 600.

 

2) By default i have just put a 10% correction on all 50 stocks. This gives us a possible Nifty of 4383 but do we think all 50 stocks will fall exactly 10%. Every stock moves in its own way in panic or good times. ( For example i expect Cement stocks to be up 10% rather then down 10% – but the weightage is too small it may only make Nifty go up by 20 points 🙂

 

3) So lets go play with your expected price on all possible stocks.

 

 

Once this is done we would come out with a poll on Nifty levels. Although my initial view was to do a POLL to gauge reader views but i thought its better we at least understand what Nifty is and what we expect of the 50 stocks before we take the poll.

 

Also it would be nice if people would comment on this post with their views and also do the above exercise at least once.

 

Happy Investing,

 

Nooresh Merani

 

nooreshtech@analyseindia.com