What is SX40


The MCX-SX benchmark index called SX40 is similar to BSE’s Sensex and NSE’s Nifty

Mumbai-based Multi Commodity Exchange of India (MCX), which is present in currency derivatives segment, began its live trading in equities and equity derivatives from Monday. MCX-SX is India’s third full-fledged equity bourse after the Bombay Stock Exchange (BSE) and the National Stock Exchange. BSE is over 132 years old, while NSE is almost 20 years old.

The stock market is an organised platform through which the buyers and sellers can trade in shares or other forms of securities like bonds, derivatives, etc. The stock exchanges serve the purpose of listing and trading the shares. With the launch of SX40, India now has three national stock exchanges—MCX-SX, BSE and NSE.

The MCX-SX benchmark index—called SX40—is similar to BSE’s Sensex and NSE’s Nifty. An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. 

The base value will be 10,000 with a base date of March 31, 2010. A free float based index of 40 large cap—liquid stocks representing diversified sectors of the economy. The term free float refers to shares that are readily available for trading. The index allows fast entry for companies with better free float, market cap and liquidity. SX40 includes companies that have a minimum free float of 10% and must have a positive net-worth. MCX-SX has taken stocks from 100 liquid companies for its SX40.

SX40 is designed to measure the economic performance with better representation of various industries and sectors. The Index is devised to offer support for investment products such as index futures and option, index portfolio, exchange traded funds, Index funds, etc.

Objective

MCX-SX will work with Indian Statistical Institute, a research organisation, for its indices. SX40 is designed to be a performance benchmark and to provide for efficient investment and risk management instrument. It would also help in structuring passive investment vehicles. The index is formed to measure the economic performance with better representation of various industries and sectors based on ICB (industry classification benchmark), a leading global classification from FTSE of the London bourse. The stocks in SX40 have an industry cap at 20% (+/- 2% band). This means stocks from a particular industry cannot have over 20% weightage in the index. There is no industrial cap in the composition of the Nifty.

Selection Criteria

  • Underlying stocks must have a positive net-worth
  • The stock must have free float of at least 10% & within top 100 liquid companies
  • Industry capping – at 20% (±)2% band
  • Fast entry for companies with better free float market cap and liquidity
  • Top 40 companies meeting above criteria constitute SX40

There are 1,116 companies currently listed on MCX-SX, compared to 1,665 firms on NSE and 5,191 companies on BSE. Out of the 700 membership applications (proprietary derivative traders) received by MCX-SX, 405 applications have been already registered by SEBI. MCX—the commodity bourse—has over 2,200 members, and MCX-SX too is expected to increase its membership base over time.

MCX-SX was granted the status of a “recognised stock exchange” by the Ministry of Corporate Affairs (MCA), Government of India on December 21, 2012. It received “commencement certificate” from the market regulator SEBI for trading in new segments such as equity, futures and options on equity, interest rate derivatives and wholesale debt market on December 19, 2012.

Transparency

Index rules are overseen by an independent index committee comprising of leading investment industry professionals, academicians, and financial experts. The Committee also monitors constituent liquidity to ensure efficient portfolio trading while keeping index turnover to a minimum. Complete details of these guidelines, including the criteria for index additions and removals, policy statements, and research papers are freely and transparently available in public domain. These guidelines provide complete transparency and fairness.

40 Constituents of SX40

Constituents of SX40 include ACC, Ambuja Cements, Asian Paints, Bajaj Auto, BPCL, Bharti Airtel, BHEL, Cairn India, Cipla, Coal India, Dr Reddy’s, Gail (India), HCL Tech, HDFC Bank, HDFC, Hero MotoCorp, Hindalco, HUL, ICICI Bank, Infosys, ITC, JP Associates, JSPL, L&T, Lupin, M&M, Maruti Suzuki, NTPC, ONGC, Power Grid Corp, RIL, Sun Pharma, TCS, Tata Motors, Tata Power, Tata Steel, Titan Industries, United Spirits, Wipro and Zee Entertainment.

Industry wise weightage: Financials (22%), consumer goods (18.2%), industrials and oil & gas (both 14.8%), tech (14.2%), healthcare (5.1%), basic materials (4.7%), utilities (3.1%), telecom (2.4%) and consumer services (0.7%).

Membership fees

MCX-SX is offering an entry-level membership fee and deposit at Rs. 25 lakh to be valid till October 18 and afterwards it would be raised to Rs. 50 lakh.

Quick Facts

  • Index Universe: Large Cap companies
  • No. of Companies: 40
  • Index Launch: February 11, 2013
  • Base Date: March 31, 2010
  • Base Value: 10,000
  • Currency: Indian Rupee
  • Index Basket Recasting: Semi-Annually
  • Minor Share Issuance adjustment: Monthly
  • Calculated & disseminated based on real time basis



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