SENSEX

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SENSEX
Presented by Mahesh Airan AEO, ICSI
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What is SENSEX?

• The Sensex is the abbreviated form of
  BSE-sensitive index, is a free float market
  capitalization weighted index of 30 stocks
  representing a sample of large well established
  and financially sound companies.

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History of SENSEX

• Sensex, first compiled in 1986, is an index of
  BSE, situated in financial capital of India
  (Mumbai) was calculated on a Market
  Capitalization-weighted methodology of 30
  component stocks. Since September 1, 2003, SENSEX
  is being calculated on free-float market
  capitalization methodology.

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Objective of SENSEX

• The SENSEX is the benchmark index of Indian
  capital market with wide acceptance among
  individual investors, institutional investors,
  foreign investors and fund managers.
• Main objectives are-
• To measure market movements.
• Benchmark for fund performance.
• For index based derivative products.

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Key points of BSE
Base year Base index value Date of launch Method of calculation 1978-79 100 01-01-1986 Launched on full market capitalization method shifted to free floated market capitalization.
No of scrips 30
Index calculation frequency 15 seconds
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Objective Of SENSEX

• To measure market movements 
• Given its long history and its wide acceptance,
  no other index matches the SENSEX in reflecting
  market movements and sentiments. SENSEX is widely
  used to describe the mood in the Indian Stock
  markets.
•  Benchmark for funds performance 
• The inclusion of blue chip companies and the
  wide and balanced industry representation in the
  SENSEX makes it the ideal benchmark for fund
  managers to compare the performance of their
  funds.
• For index based derivative products 
• Institutional investors, money managers and
  small investors all refer to the SENSEX for their
  specific purposes The SENSEX is in effect the
  proxy for the Indian stock markets. The country's
  first derivative product i.e. Index-Futures was
  launched on SENSEX.

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Free Float Index

• An index based on the market capitalization
  weighted method takes into account the total
  market capitalization of a company, regardless of
  the number of share actually available for
  trading (that is, the ability of free floating
  shares). The free float market capitalization
  method on the other hand takes into account only
  the shares that are readily available for
  trading. For example , company As market
  capitalization was Rs. 68,250 million as it had
  issued 195 million shares _at_ Rs.350. Of these, if
  only 75 million shares are available for trading,
  then the market capitalization of free floating
  stock of the company on that date would be Rs.
  26,250 million(35075 million shares).

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Free Float does not Include

• Shares held by directors/ founders/acquirers.
• Shares held by persons/bodies with Controlling
  Interest
• Shares held by Government as promoter
• Holding through FDI route.
• Locked in Shares
• Equities held by employee welfare trust.

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Formula to calculate Sensex

• Sensex Free Float market Capitalization
• Index Divisor
• Index Divisor previous day free float Market
  Capitalizaton
• previous day sensex value

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For Example-

• Suppose the Previous day free float market
  capitalization is Rs. 3,00,000 crore and
  Previous day Sensex value is 20,000 points.
• Accordingly, Index divisor becomes 15
• Now, suppose Current day free float market
  capitalization increases to Rs. 3,30,000 hence,
  current day sensex is 22,000 points.

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Example 2

• An index is calculated daily by tracking the
  share prices of its constituent member
  companies. SENSEX is calculated using market
  capitalization method. Every index is associated
  with base year. The base date for SENSEX is 1st
  April 1979 and base point is 100.
• The basic calculation of an index, on a
  particular date, involves the following steps
• Calculate the market capitalization of each
  individual company comprising the index. For
  example if a company has 195 million shares
  outstanding and its closing price on that day at
  BSE was Rs.350 per share then its market
  capitalization on that date is 195350 Rs.68,250
  million.

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Calculation Of SENSEX

• Calculate the total market capitalization (TMC)
  by adding the individual market capitalization of
  all the companies in the index. Assume that the
  total market capitalization of all companies in
  the index adds up to Rs.26,175 billion on that
  date.
• Computing of the index now requires the index
  value and total market capitalization of the
  previous day. If on the previous day, the total
  market capitalization was Rs.25,310 billion and
  the index was 10635, the index for the next day
  is calculated as
• Index value Index on previous day TMC for
  current day
• MC of previous day
• Thus, the index is 10,998
  (10,63526,175/25,310) implying that the index
  rose by 363 points over the previous day.
  

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30 Most Traded Companies Of BSE

• ACC
• AIRTEL
• BHEL
• DLF
• GRASIM

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Contd.

• HDFC
• HDFC BANK
• HINDALCO
• ICICI
• INFOSYS

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Contd.

• ITC LIMITED
• JAYPEE
• L T
• M M
• MARUTI

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Contd.

• NTPC
• ONGC
• RELIANCE INFRA
• RANBEXY
• RELIANCE COMM

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Contd.

• RIL
• SUN PHARMA
• SBI
• STERLITE
• TATA MOTORS

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Contd.

• WIPRO
• HUL
• TCS
• TATA STEEL
• TATA POWER

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Criteria for listing of scrips

• Quantitative criteria-
• Market capitalization
• Liquidity
• Trading frequency
• Number of trades
• Value of share traded
• Industry representation
• Listed history
• Qualitative criteria-
• Track record

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Market Capitalization

• The scrip should figure in the top 100
  companies listed by market capitalization. Also
  market capitalization of each scrip should be
  more than 0.5 of the total market
  capitalization of the Index i.e. the minimum
  weight should be 0.5 . Since the SENSEX is a
  market capitalization weighted index, this is one
  of the primary criteria for scrip selection.

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Liquidity

• Trading Frequency The scrip should have been
  traded on each and every trading day for the last
  one year. Exceptions can be made for extreme
  reasons like scrip suspension etc.
• Number of Trades The scrip should be among the
  top 150 companies listed by average number of
  trades per day for the last one year.
• Value of Shares Traded The scrip should be
  among the top 150 companies listed by average
  value of shares traded per day for the last one
  year. 

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Industry Representation Listed History

• Industry Representation 
• Scrip selection would take into account a
  balanced representation of the listed companies
  in the universe of BSE. The index companies
  should be leaders in their industry
  group. Listed History 
• The scrip should have a listing history of
  at least one year on BSE. 

Industry Representation  Scrip selection
would take into account a balanced representation
of the listed companies in the universe of BSE.
The index companies should be leaders in their
industry group. Listed History  The
scrip should have a listing history of at least
one year on BSE. 
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5 Day Technical Analysis Chart of Indian stock
market BSE Sensex Index
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Monthly Technical Analysis Chart of Indian stock
market BSE Sensex Index
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Who are Bulls Bears

• Those who buy shares in anticipation of
  increase in prices are commonly referred to as
  bulls And those who sell shares anticipating a
  fall in prices are referred to as bears.

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THANK YOU