We have received a lot of positive feedback about the investing in share market guide and we are really overwhelmed to see the encouraging words to continue the guide up to the mastery level, we already published two chapters in this series and this is the third chapter of the series.
We already looked into the opening of CDS and stockbroker account, buying and selling shares in the secondary and primary market. We are going to learn about the share indices in this chapter, which are the indicators of the share market performance, these indices are a bit of technical and understanding the indices will help you to take strong investment decisions, also having a good idea of the indices will help you to be calm and patient.
We recommend to read the first two chapters of the series in order to have a better understanding of investing in share market, follow below links to read the first two chapters of Investing in Share Market – Step by step guide.
- Investing in Share Market – Step by step guide – Chapter 1
- Investing in Share Market – Step by step guide – Chapter 2
The Colombo Stock Exchange has two main price indices: The All Share Price Index (ASPI), and the S&P Sri Lanka 20 (S&P SL20). In addition to the main indices, there are sector based prices indices which concentrate on the sector based performance. The Colombo Stock Exchange (CSE) has 295 companies representing 20 business sectors as at 30th September 2017, with a Market Capitalization of Rs. 2,919.7 Bn. The share market performance mainly described using the main indices. The all-share price index reflects the overall market performance and S&P 20 reflects the selected 20 listed company where the specification criteria set based on the Standard & Poor guideline.
All share Price index
All share price index is an overall market performance indicator; The All Share Price Index is one of the principal stock indices of the Colombo Stock Exchange in Sri Lanka. ASPI measures the movement of share prices of all listed companies. It is based on market capitalisation. The weighting of shares is conducted in proportion to the issued ordinary capital of the listed companies, valued at current market price (i.e. market capitalisation). The base year is 1985.
The ASPI indicates the price fluctuations of all the listed companies and covers all the traded companies during a market day.
Base values are established with average market value in the year 1985. Hence the base year becomes 1985.
S&P Sri Lanka 20 index
The S&P SL20, or the Standard & Poor’s Sri Lanka 20, is a stock market index, based on market capitalization, that follows the performance of 20 leading publicly traded companies listed on the Colombo Stock Exchange. The 20 companies that make up the index is determined by Standard & Poor’s global index methodology, according to which the index’s listing is reviewed each year.
All S&P SL20 listed stocks are classified according to S&P and MSCI’s Global Industry Classification Standard, thereby enabling better comparison of the performance of Sri Lanka’s largest and most liquid stocks with other global indices. CSE partnered with Standard & Poor to develop S&P SL20 Index, as an equity benchmark, set according to global standards, that will help investors gauge the performance of the Sri Lankan equity market.
The S&P SL20 Index was initiated on 18 June 2012 and was launched in Colombo on 26 June 2012.
Companies must have a float-adjusted market capitalization of at least LKR 500 million as of the reconstitution reference date. Current constituents require a float-adjusted market capitalization of at least LKR 300 million to remain eligible.
A revision of the S&P SL 20 methodology in March 2017established the practice of a semi-annual rebalance of the index (previously conducted annually), which is set to take place during the months of June and December each year. The revision also established the inclusion of non‐voting ordinary shares listed by the respective companies of the S&P SL 20 Index, provided that such shares meet relevant liquidity requirements.
Important to understand
As a share market investor, you should be aware of the changes in the index, you can monitor the index using your stock broker’s online facility or through Colombo stock exchange website www.cse.lk, however, fluctuations in this indices should be interpreted in a correct and viable way, positive index on a trading day does not mean that all the listed share prices are increasing, it’s a weighted average and it gives an overall picture only. As we always say, patience and concentration will nurture you into a master investor. Just keep these things in mind and grow your share portfolio slow and steady.
Next Chapter: Different types of Boards in share market.
Disclaimer: The information contained in this article is for informational purposes only, should not be considered as an investment advice. Always make sure to do your own research, talk to your financial advisor and/or seek independent advice where appropriate & necessary.