Understanding NSE 10, NSE 25 & NASI Indexes

📘 What Is a Stock Market Index?

A stock index is like a summary score that tracks the performance of a selected group of companies listed on the stock exchange. It gives you a snapshot of whether the market is going up 📈 or down 📉.

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✅ 1. A Stock Index Tracks the Performance of a Selected Group of Companies

Think of a stock index as a sample basket of companies chosen to represent the market. At the Nairobi Securities Exchange (NSE), we commonly use:

• NSE 10 – Top 10 blue-chip companies
• NSE 25 – Top 25 most active and liquid companies
• NASI – All listed stocks, including small and mid-cap

Example: If NSE 25 includes Safaricom, Equity Bank, EABL, and KCB, the index will reflect how those companies perform together. If their prices rise, the NSE 25 index will also rise.

✅ 2. Shows Whether the Market Is Going Up 📈 or Down 📉

The index moves based on the combined price performance of the companies within it:

• If most companies in the index do well, the index goes up 📈
• If most fall in value, the index goes down 📉

Example:

Yesterday, NSE 25 = 1,800 points

Today, NSE 25 = 1,850 points ➡️ This means the average prices of those companies increased.

If tomorrow it drops to 1,780, that signals a market decline.

✅ 3. Like a Scoreboard for the Overall Market

Just like a scoreboard shows the performance of teams in a match, an index shows how the stock market is doing overall.

Analogy: You don’t need to watch every single player — just check the score. Similarly, you don’t have to track every stock — just follow the index.

If the index is rising: Investor confidence is high.

If the index is falling: There might be economic uncertainty or weak company performance.

🎯 Summary Table

🔍 Feature	📝 Description
What it does	Tracks performance of a group of selected stocks
Purpose	Measures market direction (up/down)
Examples	NSE 10, NSE 25, NASI
Analogy	Like a football scoreboard – shows who is winning

💡 Tip: You can use the index as a guide when selecting shares. It helps you track strong sectors and top-performing companies in Kenya.

📘 Key NSE Indexes in Kenya – Explained Simply

The Nairobi Securities Exchange uses several indexes to show how different parts of the market are performing. Here’s what each one means in simple terms, with examples and analogies:

✅ NSE 10 Index – The Most Liquid Stocks

What: Tracks the top 10 most traded (liquid) companies on the NSE.

Layman Example: Think of it as the top 10 stalls in a market where everyone is buying and selling quickly — e.g., Safaricom, Equity, KCB.

Why Important: Shows where most money flows and investor activity is highest.

✅ NSE 20 Index – Historical Performer

What: Tracks 20 carefully selected companies based on volume, earnings, and listing history.

Layman Example: Like a Hall of Fame — includes great performers but may not reflect today’s stars.

Note: Becoming less used compared to NSE 25.

✅ NSE 25 Index – Blue-Chip Indicator

What: Includes top 25 companies based on liquidity, value, and trading volume.

Layman Example: Like the Premier League — tracks current top 25 companies by performance.

Why Important: Preferred benchmark for modern investors and ETFs.

✅ NASI – NSE All Share Index

What: Tracks the performance of all companies listed on the NSE.

Layman Example: Like a census — shows the full population, from largest to smallest firms.

Why Important: Offers a big-picture view of the whole market’s health.

🔄 How They Work Together

Index	Includes	Main Focus
NSE 10	Top 10 most liquid stocks	Trading activity
NSE 20	20 selected based on criteria	Stability and history
NSE 25	Top 25 traded & valuable stocks	Modern benchmark
NASI	All NSE-listed companies	Overall market view

Final Analogy: If the NSE were a school:

• 📘 NSE 10 = Top active students
• 🎖️ NSE 20 = Honor Roll students (long-standing good performance)
• 🏆 NSE 25 = Top 25 performers this term
• 👥 NASI = Everyone in the school (full market)

📊 Are NSE 10, 20, 25, and NASI Nested Inside Each Other?

Let’s break it down in simple terms and examples:

✅ Is NSE 10 inside NSE 20?

Not necessarily.

NSE 10 includes the 10 most liquid stocks — those that trade the most frequently.

NSE 20 is based on performance, profitability, and trading history — not just liquidity.

🧠 Example:

Safaricom might be in both NSE 10 and NSE 20. But a frequently traded stock that doesn’t meet NSE 20’s fundamentals may be in NSE 10 but not NSE 20.

✅ Is NSE 20 inside NSE 25?

Not exactly, but there is overlap.

NSE 25 includes the top 25 companies based on liquidity, trading activity, and market cap.

NSE 20 is more focused on fundamentals and stability, not just recent performance.

🧠 Analogy:

Think of NSE 20 as the "hall of fame" (quality and history), and NSE 25 as the "current top performers" (based on recent activity).

✅ Is NSE 25 fully inside NASI?

Yes — always.

NASI (Nairobi All Share Index) includes all listed companies on the NSE. That means every stock in NSE 10, 20, and 25 is part of NASI.

🧠 Analogy:

If NASI is a full school:

- NSE 25 is the top class

- NSE 20 is the hall of fame

- NSE 10 is the most active group

But they are all students in the school.

📋 Summary Table

Index	Contains	Overlaps With	Fully in NASI?
NSE 10	10 most liquid stocks	Some NSE 20 & 25	✅ Yes
NSE 20	20 strong listed firms	Some NSE 10 & 25	✅ Yes
NSE 25	Top 25 blue-chip stocks	Some NSE 10 & 20	✅ Yes
NASI	All NSE-listed companies	Includes all other indexes	✅ Yes

If you’re just starting out, use NSE 25 as a shortlist of strong companies to consider, and track NASI for the overall market trend.

🧭 Why These NSE Indexes Matter

Stock market indexes like the NSE 10, NSE 20, NSE 25, and NASI are not just numbers on a chart — they play a powerful role in how investors make decisions and understand the market.

✅ 1. Show Market Direction & Investor Confidence

Indexes help you see the overall direction of the stock market. If the index is rising, it usually means that investors are feeling confident — they are buying shares, and prices are going up. If the index is falling, it often shows fear or caution among investors.

🔍 Example:

When the NASI rises by 2% in a week, it means that — on average — most listed companies’ share prices increased. It tells you the general mood of the market is positive.

🧠 Analogy:

Think of the index like a weather forecast for the market. It shows whether conditions are:

• ☀️ Sunny (Bullish Market) – Investors are optimistic, buying actively, and prices are rising.
• 🌧️ Stormy (Bearish Market) – Investors are cautious or fearful, selling shares, and prices are falling.
• 🌤️ Neutral (Sideways Market) – Investors are indecisive, and prices move within a tight range.

This market “weather” helps you decide whether to go out (buy) or wait (hold).

✅ 2. Help Compare Individual Stock Performance

Indexes act like a benchmark. You can compare a specific stock's performance to the index to see if it's doing better or worse than the general market.

🔍 Example:

Let’s say:

• Safaricom rose by +5% this month
• NSE 25 rose by +3% in the same period

This tells you Safaricom is outperforming the general market.

But if KPLC fell by 2% while NSE 25 went up by 3%, it means KPLC is underperforming.

📊 Investors use these comparisons to decide whether to buy, hold, or sell a specific stock.

✅ 3. Used in Building ETFs and Mutual Funds

In many markets, indexes are used to create ETFs (Exchange-Traded Funds) and mutual funds that allow investors to invest in a basket of companies at once.

Note: This is not yet implemented on the NSE currently, but it's a common global practice.

An ETF tracking the NSE 25, for example, would invest in the 25 companies in the index. This allows investors to gain exposure to all the companies in the index with one investment.

✅ In Summary:

• 📈 Indexes are powerful tools for tracking market trends and investor behavior.
• 📊 They help you make smarter investment decisions based on performance comparisons.
• 💼 They are used globally to build diversified, low-cost investment products.

⚙️ How Does It Work? Understanding the Stock Market Index

Think of the Nairobi Securities Exchange (NSE) stock index as being similar to the English Premier League (EPL) — but instead of football clubs scoring goals, we have top companies competing based on their share prices and market performance.

⚽ Analogy: Stock Index as a League Table

Football League	Stock Index
20 football teams	20 top-performing companies (e.g., NSE 20 Index)
Teams score goals to move up	Companies increase in share price and performance
Table position shows team performance	Index level shows market performance

📘 Example:

Imagine you're looking at the NSE 20 Index, which tracks the top 20 companies on the stock market (just like a football league tracks the top 20 teams).

• If companies like Safaricom, Equity Bank, and EABL are performing well (their share prices are rising), the index will likely go up 📈.
• If most of those companies are underperforming (share prices falling), the index will go down 📉.

It’s just like in football:

When most top teams are winning matches, the table becomes competitive and exciting — same as the stock index rising when many top companies perform well.

🧠 In Simple Terms:

A stock index is a scoreboard for the market. It shows whether the top companies are “winning” (rising in price) or “losing” (falling in price).

• Winning = Index goes up 📈
• Losing = Index goes down 📉

You don’t have to track every single company. Watching the index gives you a big-picture view of the stock market’s health.

📊 Real NSE Indices:

• NSE 10 Index – Like the Top 10 football clubs: only the most liquid and traded stocks
• NSE 20 Index – The original “league table” with a long history
• NSE 25 Index – Includes the 25 most stable, blue-chip companies
• NASI (All Share Index) – Like a full league including all listed companies, both big and small

💡 Why It Matters:

• Indexes help you measure market strength and investor confidence.
• Beginners use them to know whether it’s a good time to invest (bullish) or wait (bearish).
• Professionals use them to benchmark portfolios and build investment strategies.

📌 Why It Matters – Comparing Your Stock to the Index

Stock indexes like the NSE 10, NSE 20, NSE 25, and NASI don’t just show you how the general market is doing — they also help you measure how well your individual stocks are performing compared to the overall market.

✅ 1. If Your Stock Outperforms the Index

When a stock you own is rising faster than the index (e.g., NSE 25), it’s a good sign:

• 📈 It’s doing better than most of the top companies in the country.
• 💰 It may offer better returns than just investing in a broad fund or index.

Example:

Let’s say the NSE 25 Index increased by 3% this month. But your stock, Safaricom, went up by 6% in the same period.

➡️ This means Safaricom is outperforming the market, and your investment is on the right track.

🏠 Analogy:

Imagine you’re comparing how fast houses in a neighborhood are increasing in value. If most go up by 5% this year, but yours increases by 10%, that’s a great result — your house is doing better than the average.

❗ 2. If Your Stock Underperforms the Index

If your stock grows more slowly than the index — or even falls while the index is rising — it’s a warning sign:

• 🔍 Your stock may be struggling while others are doing better.
• 🧠 You may need to re-evaluate whether it’s a good long-term investment.

Example:

Suppose the NSE 25 went up by 4%, but your stock, KPLC, dropped by 2%.

➡️ This shows KPLC is underperforming — and you might consider switching to a stronger stock or spreading your risk.

🚗 Analogy:

Imagine you're in traffic where most cars are moving forward, but your lane is stuck. That’s a sign you might want to change lanes — the same way you might want to change your investment strategy.

📌 3. Why Index Comparison Is a Smart Strategy

• Helps you track if you’re making smart investment choices
• Acts as a measuring stick to judge your portfolio’s health
• Encourages regular reviews and smarter rebalancing

✅ Bottom Line: If your stock consistently beats the index, you’re likely making good decisions. If it lags behind, it’s a signal to pause and adjust your strategy.

📊 Example: Help Compare Individual Stock Performance (e.g., Safaricom vs NSE 25)

One powerful way to use a stock market index — like the NSE 25 — is to compare how a specific company’s share is performing against the overall market.

✅ How It Works:

The NSE 25 Index includes the top 25 companies listed on the Nairobi Securities Exchange, such as:

• Safaricom
• Equity Bank
• KCB
• EABL
• Co-op Bank

This index acts as a performance benchmark — like an average scorecard — for Kenya’s biggest and most traded companies.

🔍 Real-Life Example:

Investment	Monthly Change
Safaricom	+6%
NSE 25	+3%

➡️ What this means:

Safaricom gained 6% in price over the month, while the average gain for top 25 companies was 3%.

✅ Conclusion: Safaricom outperformed the general market. It's doing better than most other blue-chip stocks.

🧠 Analogy: Student vs Class Average

Imagine the NSE 25 is like the class average in an exam, and Safaricom is one of the students.

• The class average score (NSE 25) is 75%
• Safaricom scores 85%

✅ That means Safaricom did better than most classmates — a high-performing stock worth watching or holding.

🔁 Reverse Case: Underperformance

Let’s say:

Investment	Monthly Change
KPLC	-2%
NSE 25	+4%

❌ This tells you KPLC is underperforming the market. While the top 25 companies grew on average by 4%, KPLC dropped by 2%.

That may prompt you to:

• Re-evaluate your reasons for holding KPLC
• Consider switching to a stronger performer

📈 Why It Matters:

• Helps you know if your investment is beating or lagging behind the market.
• Guides you in rebalancing your portfolio.
• Builds confidence in decisions backed by actual data.

📘 How to Use NSE Indexes to Buy Stocks & Balance Your Portfolio

A stock market index like NSE 10, NSE 25, or NASI is a list of top-performing companies on the Nairobi Securities Exchange (NSE). You can use it as a guide for building and managing your stock portfolio — even as a beginner.

✅ PART 1: Using Indexes to Choose Which Stocks to Buy

Think of an index like the KCSE Top Schools List. If you're choosing a school, you'd likely pick one from that list. Likewise, if you're picking shares, choosing from the NSE 25 Index is like starting with the most stable, trusted companies in the market.

🛠 Steps to Follow:

• ✅ Look at the NSE 25 list (includes Safaricom, Equity Bank, KCB, EABL, etc.)
• ✅ Pick 3–5 companies you understand or are interested in (e.g., telecom, banking, manufacturing)

📊 Example:

• Buy 100 shares of Safaricom (telecom)
• Buy 50 shares of KCB (banking)
• Buy 30 shares of EABL (consumer goods)

🎯 You’ve now built a mini diversified portfolio using the index as your trusted guide!

✅ PART 2: Using Indexes to Track and Balance Your Portfolio

Portfolio balancing means reviewing your stock performance against the market average and adjusting as needed.

Analogy: It’s like checking your car tyres before a long trip. If one is flat, you fix it so it doesn’t ruin the journey.

📈 Real Example:

• You're holding: Safaricom, Equity Bank, BAT
• NSE 25 index is your benchmark
• In 3 months:
  • NSE 25 is up +4%
  • Safaricom is up +7%
  • Equity is up +2%
  • BAT is down -1%

📊 What That Means:

• ✅ Safaricom is outperforming — consider holding or buying more
• ⚠️ Equity is underperforming slightly — monitor it
• ❌ BAT is underperforming badly — consider replacing or reducing it

🔁 What to Do When Balancing

• ✅ Reinvest more in winners (e.g., Safaricom)
• ✅ Sell laggards and buy stronger stocks from the index
• ✅ Make sure you are diversified (don’t invest only in banks)

📌 Best Index to Use as Your Guide

Index	Best For	Notes
NSE 25	Everyday investors	Top 25 most stable and active companies — great for building and tracking your portfolio
NSE 10	Focus on elite performers	Top 10 companies by market activity — very stable
NSE 20	Legacy index	Still relevant, but not as widely used as NSE 25
NASI	General market trend	Includes all listed companies — useful for seeing big picture

🎯 In Summary:

• Use NSE 25 as your “shopping list” of top shares
• Buy from different sectors (telecom, banking, manufacturing)
• Compare your portfolio to the index regularly
• Rebalance by selling weak stocks and buying better ones

📈 Let the indexes guide your journey from beginner investor to confident shareholder!