Editor’s note: This is general educational information about how the NSE 20 Share Index is constructed and why it can move differently from other Kenyan market measures, drawn from the exchange’s published ground rules and statistics listed at the end. It is not investment advice and does not describe any particular security.
On a day when more Nairobi shares rise than fall, the country’s oldest headline index can still close down. The reason is arithmetic, not mystery, and the exchange publishes it. The NSE 20 Share Index is generated by a formula set out in the Ground Rules for Generation of the NSE 20 Share Index, currently at version 1.6, and that formula behaves differently from the market capitalisation measures published beside it.
The formula, step by step
The ground rules describe the index as a price weighed measure and state the method plainly: the NSE 20 share index is an equal-weighed geometric mean of 20 large ordinary stocks traded on the Nairobi Securities Exchange. It is a chain-linked ratio index. Today’s index equals yesterday’s index multiplied by the 20th root of the product of each constituent’s price relative, where a price relative is today’s price divided by yesterday’s price for the same stock.
The published procedure is short enough to follow by hand. After market close, tabulate the prices of all the stocks in the index, using the volume weighted average price of the day, or the last traded price if no trade occurred. Tabulate the previous day’s prices computed the same way. Multiply the day’s prices to form the numerator, multiply the previous day’s to form the denominator, divide, take the 20th root, and multiply by the previous day’s index. The rules add a warning that reads like it was written by someone who had seen the error made: avoid rounding off, use a floating decimal calculator, because even a small rounding off can cause a substantial error in the final index. They also note that where a stock’s price has not changed, both prices can be ignored from the computation, but the 20th root must still be taken.
Two properties fall straight out of that construction. Each constituent contributes through the ratio of its own two prices, so a company with a share price of a few shillings has exactly the same influence as one priced in the hundreds. And because the contributions multiply rather than add, a proportional fall in one stock cancels an equal proportional rise in another only in log terms, which is why the index systematically registers less than the average arithmetic gain of its members.
Who gets into the twenty, and how they leave
Eligibility is set out separately. A company’s shares must have their primary listing on the Nairobi Securities Exchange, at least 20% of its shares must be quoted on the exchange, it must have been continuously quoted for at least 1 year, it must have a minimum market capitalisation of Kes.20 million, and it should ideally be a blue chip company with a superior profitability and dividend record.
The Trading Committee, acting as the Index Management Committee, meets semi-annually to review constituents. The review builds a database of all listed securities, applies the liquidity tests, and weights the activity measures at market capitalisation 40%, shares traded 30%, number of deals 20% and turnover 10%. Eligible securities are ranked by market capitalisation, and an existing constituent that has fallen to position 21 or below qualifies for removal. Additions and deletions are matched so that the number of securities remains constant. The exchange publishes a reserve list of the five highest ranking non-constituent securities after each review, and that list supplies replacements between reviews.
Corporate events have their own handling. A delisting, a loss of firm quotation or a takeover declared wholly unconditional triggers removal and simultaneous replacement from the reserve list, effected before the start of business on the day following the announcement. Where a suspension lasts more than 30 calendar days and the committee thinks the stock is unlikely to return, it is deleted, at its suspension price unless the committee decides otherwise. A relisting security larger than the smallest constituent is reinstated at the price at which it was removed, and the lowest ranking constituent is dropped, so that there are always 20 constituent companies.
The current constituent list is heavily financial. It runs Britam Holdings, BK Group, ABSA Bank Kenya, Equity Group Holdings, KCB Group, I&M Group, The Co-operative Bank of Kenya, Kenya Re Insurance Corporation, Diamond Trust Bank Kenya, CIC Insurance Group, Centum Investment, Standard Chartered Bank Kenya, HF Group, KenGen, Stanbic Holdings, Kenya Power and Lighting, British American Tobacco Kenya, East African Breweries, NCBA Group and Safaricom. Version 1.6, dated 21/05/2025, replaced Bamburi Cement and Nation Media Group with HF Group and Diamond Trust Bank Kenya. Version 1.5, in 2023, had replaced WPP Scan Group, Nairobi Securities Exchange and Diamond Trust Bank Kenya with CIC Insurance Group, Bank of Kigali Group and I&M Holdings.
What sits beside it on the board
The exchange publishes several measures at once. On 02-Sep-2026 the statistics page showed the NSE ALL SHARE INDEX at 254.60, up 1.89; the NSE 20 SHARE INDEX at 4,405.85, up 54.16; the NSE 25 SHARE INDEX at 7,098.28, up 91.66; the NSE 10 SHARE INDEX at 2,794.46, up 51.82; and the BANKING SECTOR INDEX at 292.78, up 5.01, with market capitalisation of 4,272.78 billion shillings.
Those numbers are not on a common scale and are not built the same way. The exchange launched the NSE 10 Share Index and the NSE Bond Index on September 4, 2023, and described the NSE 10 as based on market capitalization float adjusted methodology, distributed daily. A float-adjusted capitalisation index moves with the value of shares actually available to trade. The NSE 20 moves with the geometric average of price changes across twenty equally treated names.
The rules themselves sit inside a supervised structure. Section 21A of the Capital Markets Act allows an approved securities exchange to make rules for the carrying out of its functions and for the regulation of its activities, products, systems and fees. Section 21B requires the exchange to submit those rules to the Authority not less than thirty days before their proposed introduction, and section 21C allows the Authority to abrogate rules where risks have not been adequately mitigated.
Analysis: why breadth and direction come apart
The divergence a reader notices has three separate causes, and they are worth keeping apart. The first is the geometric mean itself. Because the index compounds price relatives and then takes a root, a stock that falls by a given percentage subtracts more from the index than a stock that rises by the same percentage adds. On a day of many small gains and one large loss, the count of risers and the direction of the index can point opposite ways without either being wrong.
The second is equal weighting. The ground rules select constituents by market capitalisation and by an activity score that puts 40% on capitalisation, but once a stock is in the index its size stops mattering. Safaricom and HF Group enter the daily calculation on identical terms. So the NSE 20 can fall while the market’s largest companies rise, and the float-adjusted NSE 10 will not agree with it on such a day by construction rather than by accident.
The third is the price input. The ideal price is the volume weighted average price of the day, but where no trade occurred the last traded price is used. In a market where several of the twenty may not trade on a given session, part of the index reflects yesterday’s information carried forward, and the note that unchanged prices can be dropped from the product while the 20th root is still taken makes that carry-forward mathematically explicit.
All three are features of a 1960-vintage design that the exchange has kept and set out in its published ground rules rather than replaced. A reader comparing indices on the statistics page gets the most from treating the NSE 20 as a breadth-insensitive average of price movement among twenty names, the NSE 10 as a value measure of the largest tradeable float, and any gap between them as information about where the day’s movement was concentrated rather than as an error in either.
