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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Understanding Index

An index has a base-date market capitalisation of Rs 5,00,000 crore, the index value being 1,000. Because of a new constituent addition, the market capitalisation of the index set rises by Rs 50,000 crore at a time when the pre-change market cap was Rs 6,00,000 crore, and the index must stay unchanged by this change. What is the new base market capitalisation?

The new base market capitalisation is about Rs 5,41,667 crore. To keep the index unchanged, the old base is scaled by the ratio of new to old market capitalisation: 5,00,000 multiplied by 6,50,000 divided by 6,00,000 gives 5,41,667 crore.

  1. ARs 5,41,667 croreCorrect
  2. BRs 5,50,000 crore
  3. CRs 4,58,333 crore
  4. DRs 5,00,000 crore

Explanation

New base = old base x (new market cap / old market cap) = 5,00,000 x (6,50,000 / 6,00,000) = 5,00,000 x 1.08333 = 5,41,667 crore. Check: 6,50,000 / 5,41,667 = 1.2 = 6,00,000 / 5,00,000, so index is unchanged. Adding Rs 50,000 crore directly to the base ignores proportional scaling.

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