Construction of commodity based Index Group 2 Rishi Shah Haripreetha Parthasarathy Ashok Kumar Reddyyerasi Ravi Matalia Vishal Gujarathi.

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Presentation transcript:

Construction of commodity based Index Group 2 Rishi Shah Haripreetha Parthasarathy Ashok Kumar Reddyyerasi Ravi Matalia Vishal Gujarathi

 All companies that had iron ore as one of its raw materials were obtained through prowess.  151 companies were identified  At the first level, companies whose raw materials constitute more than 40% of their expenses were selected. This would give a set of companies that are driven more by iron ore.  In order to create an index, companies with large market capitalization are preferred. A threshold of Rs. 5 billion was selected and only companies with market cap beyond this were taken to the next set.  These steps culminated into a set of 10 companies Initial set of 151 companies Raw material % Market Capitalization List of companies  High trading volumes are also important prerequisites for a company to be included in an index. This criterion was incorporated next into the analysis. Trading Volumes Bhushan Steel Ltd. Electrosteel Castings Ltd. Electrosteel Steels Ltd. Essar Steel India Ltd. J S W Ispat Steel Ltd. J S W Steel Ltd. Jindal Saw Ltd. Jindal Steel & Power Ltd. Steel Authority Of India Ltd. Tata Steel Ltd. The universe of 151 companies were narrowed down to 10 using a set of filter criteria

Correlation b/w Iron ore and market capitalisation : From jan 2009 Bhushan Steel Ltd Electrosteel Castings Ltd Electrosteel Steels Ltd Essar Steel India Ltd E-16 J S W Ispat Steel Ltd J S W Steel Ltd Jindal Saw Ltd Jindal Steel & Power Ltd Steel Authority Of India Ltd Tata Steel Ltd Correlation b/w Iron ore and market capitalisation : From jan 2012 Bhushan Steel Ltd Electrosteel Castings Ltd Electrosteel Steels Ltd Essar Steel India Ltd E-15 J S W Ispat Steel Ltd J S W Steel Ltd Jindal Saw Ltd Jindal Steel & Power Ltd Steel Authority Of India Ltd Tata Steel Ltd Using the monthly iron ore prices, the correlation of the selected 10 companies were computed. This was done in two time frames- from Jan 2009-till date and from Jan 2012-till date. 2.Only the positively correlated companies were selected to be included in the index 3.Finally, a set of 6 companies were selected to be a part of our index. Correlation analysisIndex creationSet of 10 companies Correlation with iron ore was studied to select 6 companies for the index

Based on Free Float M.CapBased on Total M.cap Company Correlation with Iron ore pricesFree Float M.capWeightageTotal M.capWeightage Bhushan Steel Ltd % % J S W Steel Ltd % % Jindal Saw Ltd % % Jindal Steel & Power Ltd % % Tata Steel Ltd % % SAIL % % Index constituents were planned depending on flee float or total market cap The % representation of the selected 6 companies could be based on either of the following two: Free float market cap Total market cap The major differences between the two methods can be seen in case of Tata Steel and SAIL. Hence it can be seen that higher the market cap of a company (either free float or total), the bigger its share in the index.

companies price of share no of shares(mn) Free Float Factor Free Float M Cap(Mn) Weightage in Index Bhushan Steel Ltd % J S W Steel Ltd % Jindal Saw Ltd % Jindal Steel & Power Ltd % Tata Steel Ltd % SAIL % Total Used goal seek to limit each script to 25% This will ensure proper representation of companies with in the index. Final Index is Built using Free Float M.Cap, by putting a Cap at 25% for each script Index Vs the Iron Ore prices in the last one year

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