NSE unveils new index for top 25 listed companies

Money Markets

The Nairobi Securities Exchange (NSE) chief executive Geoffrey Odundo. PHOTO | FILE 

By  GEOFFREY IRUNGU

In Summary

• The new index is expected to facilitate smooth operation of upcoming market for derivatives, which are instruments used in hedging against risk present in underlying assets.

The Nairobi Securities Exchange has launched a new index comprising 25 companies, with financial sector firms making up more than half the list.

In a statement released last Friday, the NSE said the new index is expected to facilitate smooth operation of upcoming market for derivatives, which are instruments used in hedging against risk present in underlying assets.

The launch of the index is also set to deepen the market in terms of providing opportunities to form Exchange Traded Funds (ETFs), which focus on specific group of stocks such as those in an index.

The new index has nine banks including Barclays, CfC Stanbic, Equity Group, Diamond Trust, KCB Group, NIC, StanChart, Coop and I&M.

Other financial companies to be on the NSE 25 are HF Group, Kenya Re, CIC insurance, Britam and Liberty Kenya.

“In line with global best practice, the NSE Board recently approved the launch of a new index dubbed NSE 25 Share Index with effect from October 2,” said the NSE in the statement.

The NSE said the decision was necessitated by the need to give a new benchmark to stock market players.

“The move is informed by the need to have a reference benchmark that can be used by capital market players, as we gear to launch the NSE derivatives market.”

The NSE 25 Share Index now increases the number of indices relating to the NSE companies with the FTSE NSE 25 being its closest counterpart. The FTSE NSE 25 captures the performance of the 25 most liquid listed firms.

The NSE currently has five market indices, that enable investors to measure the performance of the major industry segments of the securities market.

These include the NSE 20 Share Index, NSE All Share Index (NASI), FTSE NSE Kenya 15 Indices, FTSE NSE Kenya 25 Indices and the FTSE NSE KE (Kenya) Government Bond Index.

The NSE used several criteria to determine the inclusion of a stock on the new index, among them being a company must have its primary listing on the NSE with at least 20 per cent of its shares quoted on the local bourse over the last one year.

A firm included in the index must also have a minimum market capitalisation of Sh1 billion and ideally be a blue chip in the sense of superior profitability and dividend record.

“The new NSE 25 Share Index has been designed and guided by industry best practices, with a view to provide the exchange with opportunities to develop structured products in the equities and the upcoming derivative market,” said NSE chief executive Geoffrey Odundo.