Stock Market Indices in India

By:
Raghunandan Helwade
 Stock market indices in India

BSE Sensex

NIFTY FIFTY

BSE 100

BSE 500 etc

SENSEX
index that the world tracks
 AGENDA
What is SENSEX?
Brief history
Objectives
Some Important concepts
Scrip selection criteria
Maintenance of Sensex
 AGENDA
Who select these stocks and how?
Dollex series of Sensex
Company groups
Calculation of Sensex value
Calculation of closing index
List of 30 companies
 What is SENSEX?
SENSEX, short form of the Bombay Stock Exchange’s
‘Sensitive Index’.

An index of 30 stocks representing a sample of large,

well-established and financially sound companies in 12 major
sectors.

Shows whether the stocks are generally going up or going down.

Benchmark index of the Indian Capital Markets with wide acceptance among
individual investors, institutional investors, foreign investors and fund managers etc.
 BRIEF HISTORY
Launched on 1st JAN 1986 by BSE which is the oldest stock exchange
in ASIA and second stock exchange in the world to get an
ISO 9001:2000 certification.

The base year of Sensex is 1978-79 and the base value is 100.

Considered to be the pulse of the Indian stock markets as

it provides time series data over a fairly long period of time
(since 1978-79).

Oldest index in India and has acquired a unique place

in the collective consciousness of investors.
 OBJECTIVES

To measure market movements

Benchmark for funds performance

For index based derivative products

 SOME IMPORTANT CONCEPTS

Market capitalization

Free float market capitalization

 Market capitalization
Market cap or market capitalization is simply the worth of a
company in terms of it’s shares

In simple words it is nothing but the total amount you would give
to buy all the shares of a particular company

To calculate the market cap of a particular company, simply

multiply the “current share price” by the “number of shares issued
by the company”

Depending on the value of the market cap, the company will either
be a “small-cap”, “mid-cap”, or “large-cap” company.
 Market capitalization

Example

Suppose the total issued shares of HUL is 10,000 and the

current market price of each share is say Rs 50/-
then the market capitalization or market cap
of HUL will be ?

ANSWER: Rs 500,000/-
 Free-Float Market Capitalization

Different types of investors hold shares of a particular company.

Some of the shares may be held by the founders

or directors of the company.

The Govt. may hold some of the shares.

Some of the shares may be held by the FDI’s etc.

 Free-Float Market Capitalization
Now, only the ‘open market’ shares that are free for trading by anyone,
are called the “free-float” shares.

A particular company may have certain shares in the open market and
certain shares that are not available for trading in the open market.

While calculating Sensex free float shares are considered.

Now ‘free float market capitalization’ is the total value of all the shares
of a particular company in the open market.
 Free-Float Market Capitalization

Example

Referring back to our market capitalization example

Where we assumed the total issued shares of HUL as 10,000
now let us assume that out of those 10,000 shares only 5000
shares are available for trading in the open market and the
current market price is same (Rs 50/- per share).
then the free float market capitalization will be ?

ANSWER: Rs 250000/-
 SCRIP SELECTION CRITERIA
Listed History
Number of Trades
Trading Frequency
Continuity
Final Rank
Market Capitalization Weightage
Industry/Sector Representation
Track Record
 MAINTENANCE OF SENSEX
The Index Cell of the BOMBAY STOCK EXCHANGE does the
day to day maintenance of the Sensex.

It is done keeping in mind the broad index policy framework

set by the Index Committee of BSE.

The Index Cell ensures frequent up gradation in index and

historical continuity.

The Index Committee of the BSE comprises of experts on

capital markets from all major market segments.
 MAINTENANCE OF SENSEX
They include Academicians, Fund-managers from leading Mutual
Funds, Finance-Journalists, Market Participants, Independent
Governing Board members, and Exchange administration.

Maintenance also includes any adjustments in additional issue of

capital and other corporate announcements like rights issue.

This adjustments are done so that the index showcase the correct
value.
 WHO SELECT THESE STOCKS ?
They are selected by the Index Committee of BSE.

This committee consists of all sorts of individuals including

academicians, mutual fund managers, finance journalists,
independent governing board members and other participants
in the financial markets.
 HOW THEY SELECT THESE STOCKS?
The bases of selection are as follows:
(i) The stock should have been traded on each and every trading day
(the days on which the stock market works) for the past one year.

(ii) It should be among the top 150 companies listed by average

number of trades (buying or selling of shares) and the average
value of the trades (in actual rupee terms) per day over the past one year.

(iii) The stock must have been listed on the BSE for at least one year.
 DOLLEX SERIES OF SENSEX
Sensex reflects the growth of market value in terms of INDIAN RUPEES.

Need was felt to design a pattern by which these growth can be valued in
terms of DOLLAR.

Such index would then reflect in one value the changes in both stock
prices and foreign exchange variation.

Hence on July 25, 2001 dollar linked version of Sensex

called ‘DOLLEX 30’ was launched
 DOLLEX SERIES OF SENSEX
DOLLEX 30 emerged because Indian equity markets was
increasingly getting integrated with global capital markets.

Useful for overseas investors in measuring their 'real returns'

after providing for exchange rate fluctuations.

Calculated at the end of the trading session by taking into

consideration day's rupee/ US $ reference rate as announced by
India 's Central Bank i.e. Reserve Bank of India

But since May 22, 2006 this index is calculated and displayed
through BSE online trading terminals(BOLT) by taking into
account real time Re/US $ exchange rate
 COMPANY GROUPS
Sensex comprises of 30 companies in 12 major sectors

This companies fall in a particular group based on their

market capitalization.

Each and every company in the group is awarded certain Weightage

Example: Infosys = 1.9 and Reliance = 1.2
likewise all companies are ranked.

According to the movement of the prices of these shares,

the index is calculated.
 COMPANY GROUPS
CASE 1

Let us assume that Sensex’s closing for a

particular day is 12,500 points and the next
day some 100 points go up and is trading at
12,600 points. What does this show?

ANSWER: Out of those 30 companies some are

moving up and some are moving down
and the net result is 100 points
 COMPANY GROUPS
CASE 2
Sometimes you may notice that out of those 30
companies 28 companies have gone down and
only 2 companies are going up and Sensex is still
gaining points. WHY?

ANSWER: The reason is Weightage.

for example Infosys, Reliance, ONGC,
is enough to pick up Sensex even when
others are substantially down.
 CALCULATION OF SENSEX VALUE

SENSEX CALCULATION METHODOLOGY

It is calculated using ‘free float market capitalization’ value

The level of index at any point of time reflects the free float
market value of 30 shares relative to a base period.

The calculation of SENSEX involves dividing the free-float

market capitalization of 30 companies in the Index by a number
called the Index Divisor.
 CALCULATION OF SENSEX VALUE

SENSEX CALCULATION METHODOLGY

The Divisor is the only link to the original base period value of the
SENSEX.

It keeps the Index comparable over time and is the adjustment

point for all Index adjustments arising out of corporate actions,
replacement of scrips etc
 CALCULATION OF SENSEX VALUE

SENSEX CALCULATION PROCEDURE

First: Find out the free float market capitalization of all

the 30 companies that make up the Sensex.
Second: Add the free float market capitalization of all the
30 companies.
Third: Make all this relative to Sensex base.
the value you get is the Sensex value.
 CALCULATION OF SENSEX VALUE

SENSEX CALCULATION PROCEDURE

The third step probably confuses you.
To understand it you got to know
‘ratios and proportion’ of 5th standard mathematics.
Suppose for a free float market capitalization of
Rs 100,000/- the Sensex value is 500 then for a
free float market capitalization of Rs 150,000/-
the Sensex value will be ?

ANSWER: 100,000 = 150,000

500 ?

That is 750 points

List of 30 companies
The companies are placed in their respective sectors.
These are the 30 most powerful companies of INDIA
LATEST NEWS
Market Structure of SENSEX
as on 20 Oct 2010

(Rs. in Crores)

Market. Capitalization 34,46,600.29

Free Float Market Capitalization 15,85,748.91

LATEST NEWS

Market statistics of SENSEX

as on 20 octobe 2010 4PM

SENSEX 19923.55
S & P CNX NIFTY FIFTY

The Index of the Nation

S & P CNX NIFTY FIFTY Introduction

It is the headline index on NSE.

It tracks the behavior of a portfolio of blue
chip companies, the largest and most liquid
Indian securities.
It includes 50 of the 1430 companies listed
on NSE.
It covers 21 sectors of Indian economy.
S & P CNX NIFTY FIFTY Introduction

The trading has been since April 1996

Well suited for benchmarking, index funds and
index based derivatives.
The index has S&P CNX DEFTY index too which
is a U.S. DOLLAR dominated index.
S&P CNX NIFTY is owned and managed by India
Index Services & Products Ltd (IISL)
It is a joint venture between NSE and CRISIL
Scrip selection criteria
Liquidity (impact cost)

Float market capitalization

Domicile

Eligible securities

Other variables
Base values
The base period is NOV 3, 1995
Base value is 1000
Base capital Rs 2.06 trillion
THANKS
FOR YOUR CO-OPERATION
ANY QUESTIONS ?