- The first index which comes into effect immediately is the NSE 10 Index. This will monitor the performance of Safaricom, and lenders Co-op, Equity and KCB.
- It will also monitor KenGen, EABL, Kenya Re, Absa, Centum and NCBA Group stocks, which complete top ten listed firms.
- The bourse has also unveiled the NSE-BI which is set to launch on October 1. The new index will focus on the bond market.
The Nairobi Securities Exchange (NSE) will track the performance of its top ten listed firms and monitor the bond market using two new market indices. The first index, which comes into effect immediately, is the NSE 10 Index. This will monitor the performance of the equities of telco Safaricom, and lenders Co-op Bank, Equity and KCB.
It will also monitor the equities of KenGen, EABL, Kenya Re, Absa, Centum and NCBA Group which complete the set of top ten listed firms on the Nairobi bourse. The NSE has also unveiled the NSE-BI, which is set to launch on October 1 focusing on the bonds market.
NSE Managing Director Geoffrey Odundo said the new indices will see investors track market activities better. “The NSE 10 Index shall be based on a set of 10 companies, whose list will be reviewed semi-annually. One of the key elements of this index is that it will be based on market capitalisation float-adjusted methodology and will be distributed on a daily basis,” the NSE said.
The role of stock market indices
A stock market index is a single number obtaining from the prices of different stocks. Index is also termed as indices when one is talking about more than one of them.
Indices offer critical details on stock performance for portfolios such as mutual funds. Stock market indices may be classed in many ways. A broad-base index represents the performance of a whole stock market and reflects how investors feel about the economy.
The most regularly quoted market indices are broad-base indices encompassing stocks of large companies on a nation’s stock exchange. Stock indices are evolving, becoming much more than economic indicators (market barometer) and with growing developments in financial markets, more technical functions of indices are coming up.
Investors and fund managers use stock indices to evaluate the performance of a stock market. The application of indices is now much wider, including the use of indices as benchmarks for investor portfolio comparisons and as underlying components of financial products, for example Exchange Traded Funds (ETFs) and derivatives.
The primary uses of market indices are to gauge market sentiments, serve as proxies for measuring returns and risk, serve as proxies for asset classes, benchmark active managers, and model portfolios for index funds and exchange-traded funds.
Market indices on the NSE
Over the years, the NSE has had three main indices. These are the NSE 20 Share Index, NSE 25 Share Index, and NSE All Share Index. Owing to Covid-19 pandemic alongside other crises, the Nairobi bourse has posted poor performance since 2020.
Currently, only a few counters under the NSE 20 Share Index control the bulk of total market capitalisation. The latest Capital Market Authority report shows that five NSE-listed firms increased market dominance to 75.4 per cent, worsening exposure risk of the bourse.
Safaricom, brewer EABL, KCB, Equity and Co-op now control $8.2 billion of investors’ wealth out of the total $10.3 billion. With Safaricom accounting for half of the market capitalisation, the NSE says that this gives a false impression of the bourse’s performance.
The bourse is also reviewing the NSE 20 Share Index to align with best practices. Exiting the new-look NSE 20 Share Index are WPP Scan Group Plc, Nairobi Securities Exchange Plc, and Diamond Trust Bank Kenya. The new entrants are CIC Insurance Group Plc, Bank of Kigali Group Plc, and I&M Holdings Plc.