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The Rediff Business Special/ Nikhil Faleiro

Two don't tango: Nifty one step ahead of the icon Sensex

There was a time when it was called the poor brother of the Bombay Stock Exchange, the undisputed king of the capital markets for over a century. Four years back, however, the National Stock Exchange was born and grew up fast to dent the BSE's armour.

And now, as far as being in sync with the times is concerned, it has overtaken the old rival. First it was the decision to go in for index-based derivatives trading in the near future. The NSE was one step ahead in that it sought the permission of the Securities and the Exchange Board of India to offer membership for derivatives.

When the BSE includes two infotech stocks -- Infosys and NIIT -- in its showpiece index Sensex for the first time on November 16, it will again be behind the NSE.

The NSE introduced seven new stocks, including the infotech ones, in its S&P CNX Nifty much before the BSE, and proved that it has an open mind on accepting stocks that truly reflect the changing face of the economy.

Unlike the Sensex which mainly comprises stocks representing the core and infrastructure sectors, the Nifty is broad-based. NSE Managing Director R H Patil says, "Today, the software industry is a very important sector. It is earning vast quantities of foreign exchange. The NSE is national in character. In certain states, information technology is the main source of revenue and employment, so we cannot ignore the infotech stocks."

Clifton D'Silva, president, Altina Securities and member of the NSE, says, "If one looks at the movement of the market from January to March, the entire market was carried on the shoulders of the software stocks and it is only fair that such scrips were included in the Nifty."

That the revised S&P CNX Nifty reflects the state of the economy better is borne out by the fact that on January 1, 1998, the old index closed at 1081.20. If one were to include the new stocks and re-calculate, it would have been 931.05. At present the Nifty is at 897.25, much nearer to the estimated January 1 level.

Market analysts said that by including shares of higher market liquidity and weightage, the Nifty has become more balanced in terms of index weightage of individual scrips. These new scrips added a weightage of 8.70 per cent, up 3.20 per cent; the axed seven scrips had a combined weightage of 5.50 per cent.

According to an NSE official, the two software scrips in the new revised Nifty will command an index weightage of 3.70 per cent while the five other new scrips have a lesser percentage. Hero Honda has an index weightage of 1.23 per cent while Bank of India, Procter and Gamble, Cipla and Smithkline Beecham Consumer have a weightage of one per cent each.

For NSE members, the inclusion of software scrips is an indication of their willingness to adapt to change.

They concede that the BSE Sensex, which came into existence in 1978, remains an icon which everyone wants to refer to. But then, it is about time that the market indices recognise industries or sectors that prop up the economy from time to time, they aver.

As if to reinforce that the NSE's step ahead was in the right direction and much thought-out, they cite the fact that the first half results of infotech companies have outperformed most of the old established companies. ''As results came out and as share prices reacted, it was the Nifty that reflected the scene better than any other index,'' an analyst said.

Specials