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FINANCIAL ENGINEERING

An assignment on CALCULATION OF S&P BSE 100 INDEX

Submitted to: Dr. Arup Roy Assistant Professor, Dept. of Business Administration

Submitted by: Neha Chowdhury (BAM11002) Rima Bharali (BAM11007) MBA- 4th Semester

INTRODUCTION:

A broad-based index, the BSE-100 was formerly known as the BSE National index. BSE-100 was launched on January 03, 1989. The base year for this index is 1983-84 with base index value fixed at 100 points when it began. BSE-100 was launched on full market capitalization method and shifted to Free-Float methodology effective from April 5, 2004. The index has 100 companies with varying weightages. BSE calculates a dollar-linked value of SENSEX called Dollex series of BSE indices. The method of computation of Free-Float index and determination of free-float factors is similar to the methodology for SENSEX. S&P BSE-100 index has been re-based to 58 from 100 with effect from June 4, 2012. The index calculation frequency is real time. BSE National Index comprises of 100 stocks listed at five major stock exchanges in India at Mumbai, Calcutta, Delhi, Ahmadabad and Madras.

Company Selection Criteria The following is the selection criteria for a company to be listed under S&P BSE 100: Trading Frequency - The company should have been traded on 95% of the trading days in the last three months. Exceptions can be made for extreme reasons like company suspension etc. Final Rank - The company should figure in the top 200 companies listed by final rank. The final rank is arrived at by assigning 75% weightage to the rank on the basis of three-month average full market capitalization and 25% weightage to the liquidity rank based on three-month average daily turnover & three-month average impact cost. Industry Representation - Company selection would generally take into account a balanced industry representation of the listed companies in Bombay Stock Exchange (BSE). Track Record - In the opinion of the BSE Index Committee, the company should have an acceptable track record.

S&P BSE-100 index - Scrip Selection Criteria The following is the selection criteria for a scrip to be selected under the S&P BSE 100 index: 1. Equities of companies listed on BSE Ltd. shall be considered eligible.

2. Listing History: The stock should have a listing history of at least 3 months at BSE. An exception may be granted to one month, if the average free-float market capitalization of a newly listed company ranks in the top 10 of all companies listed at BSE. In the event that a company is

listed on account of a merger / demerger / amalgamation, a minimum listing history is not required. 3. The stock should have been traded on 95% of the trading days in the last three months. Exceptions can be made for extreme reasons like scrip suspension etc. 4. The list of constituents selected through Steps 1-3 are ranked on Average Free-Float Market Capitalization, Average Turnover and Average Impact Cost. 5. Liquidity Rank is computed by giving 75% weightage to Average Turnover Rank and 25% weightage to the Average Impact Cost Rank. 6. Final Rank is arrived by giving 75% weightage to Average Free-Float Market Capitalization Rank and 25% weightage to Liquidity Rank, 7. The filtered list of constituents selected through step 6 is sorted on Final Rank. 8. Any existing constituent ranking beyond 200 on Final Rank is excluded. 9. The remaining companies are then sorted based on whether they are an existing member of the BSE-100 constituents and then on Final Rank.

CALCULATION OF S&P BSE 100 INDEX S&P BSE 100 index uses Free-float Methodology of calculation for calculating the index value. Free-float Methodology refers to an index construction methodology that takes into consideration only those shares issued by the company that are readily available for trading in the market. It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the market. BSE determines the Free-float factor for each company based on the detailed information submitted by the companies in the prescribed format. Free-float factor is a multiple with which the total market capitalization of a company is adjusted to arrive at the Free-float market capitalization. Once the Free-float of a company is determined, it is rounded-off to the higher multiple of 5 and each company is categorized into one of the 20 bands given below. A Freefloat factor of say 0.55 means that only 55% of the market capitalization of the company will be considered for index calculation

The following procedure has been used for calculation of S&P BSE 100 index:
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Step 1: We are calculating the index as on 21-03-2013. For this we first determine the free float market capitalization of S&P BSE 100 as on 20-03-2013. The data has been collected from the www.bseindia.com website. Step 2: The free float market capitalization which has been derived in Step 1 is now divided by the S&P BSE 100 index as on 20-03-2013. This will give us the Index divisor which is used in calculation of the index as on 21-03-2013. Thus, Index Divisor = Free float market capitalization (previous day) S&P BSE100 Index (previous day) Step 3: Now, we determine the free float market capitalization as on the day for which we are calculating the index. This data is available on the www.bseindia.com website. Step 4: The free float market capitalization which has been derived in Step 3 is now divided by the Index Divisor (determined in Step 2). This will give us the required value of S&P BSE index as on 21-03-2013. Thus, S&P BSE 100 = Free Float market capitalization (on the required date) Index divisor The calculation for the above procedure has been illustrated below: Free float market capitalization as on 20-03-2013 = Rs. 2260112.43 S&P BSE 100 as on 20-03-2013 = 5,692.99 Free float market capitalization as on 21-03-2013 = Rs. 2243785.61 Index Divisor = 2260112.43 5,692.99 = 396.999192 S&P BSE 100 as on 21-03-2013 = 2243785.61 396.999192 = 5651.864425 The value of the index arrived at as on 21st March, 2012 is 5651.864425.

ANNEXURE:
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The given table shows the sectors which are included under S&P BSE 100: Free FFloat Market Free Float MarketCapitalisation Capitalization

Sl.No

InSectors

Index/Sectors

(Rs. crore) Rs. in Crore BSE100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Finance FMCG Information Technology Oil & Gas Transport Equipments Healthcare Metal,Metal Products & Mining Capital Goods Power Housing Related Telecom Chemical & Petrochemical Textile Media & Publishing Consumer Durables Transport Services Diversified Agriculture 2243785.61 608684.78 290489.63 289180.87 266038.56 171670.53 113525.89 113377.40 106092.76 79528.68 66540.41 52520.20 29052.63 18567.25 11398.70 11064.04 6310.69 5727.26 4015.36

% % 100 27.13 12.95 12.89 11.86 7.65 5.06 5.05 4.73 3.54 2.97 2.34 1.29 0.83 0.51 0.49 0.28 0.26 0.18

The following table gives data about the 100 scrips that are included in the calculation of S&P BSE 100 index. Their free float market capitalization as on 20-03-2013 has also been given :

Scrip Code

Company

Free-Float Mkt. Cap (Rs. crore)


169767.93 146376.2 140048.31 120265.04 118962.78 115553.28 91427.66 79615.57 64412.15 56844.25 54176.8 50653.29 40285.58 39502.81 37368.65 34761.36 28725.14 26623.21 26468.9 25972.84 23958.36 22915.01 22761.39 21573.15 20296.65 20235.37 19372.86 19050.68 18813.29 18773.78 18224.82
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500875 500325 500209 500010 500180 532174 532540 500510 500312 500112 500570 500696 500520 532215 532454 524715 532555 532977 507685 500247 500820 500124 500470 532281 500087 532538 532500 532792 533278 500300 532659

ITC RIL Infosys HDFC HDFC Bank ICICI Bank TCS L&T ONGC SBI Tata Motors Hindustan Unilever Mahindra & Mahindra Axis Bank Bharti Airtel Sun Pharma NTPC Bajaj Auto Wipro Kotak Mah Bank Asian Paints Dr Reddys Lab Tata Steel HCL Tech Cipla Ultratech Cem Maruti Suzuki Cairn India Coal India Grasim Inds IDFC

500790 532187 532432 532898 500182 500400 532155 500103 500257 532286 500900 500425 532134 500440 505537 532648 500547 500410 500114 526371 532868 532461 532822 532424 500830 500376 511218 500096 532532 500469 500359 532296 530965 500228 532955 532810 500480 500253 532921 532488 532483

Nestle India Indusind Bank United Spirits Power Grid Corp Hero MotoCorp Tata Power Gail India BHEL Lupin Jindal Steel Sterlite Inds Ambuja Cements BOB Hindalco Inds Zee Entert Yes Bank BPCL ACC Titan Inds NMDC DLF PNB Idea Cellular Godrej Cons Colgate Palmolive Satyam Comp Shriram Trans Dabur India Jaiprakash Asso Federal Bank Ranbaxy Lab Glenmark Pharma Indian Oil Corp JSW Steel REC Power Finance Cummins India LIC Housing Fin Adani Ports Divis Lab Canara Bank

18132.33 16852.54 16862.41 16925.12 16504.67 16362.33 16168.01 15604.06 15416.61 14212.51 13867.97 13539.71 12717.28 12141.21 11569.72 11588.13 11006.79 10777.99 10833.21 10633.37 10559.56 10089.21 8958.89 9013.96 8957.85 8785.5 8534.28 8268.92 8348.19 8214.03 7447.46 7354.26 7277.79 7138.63 7008.98 7023.14 6883.57 6666.09 6633.74 6398.46 6033.77
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500295 500550 532149 512599 500086 500770 532477 532478 500800 500390 500104 500188 532939 532712 500113 500111 512070 533098 533096 507878 500093 500116 500477 500493 500002 532754 532667 532873

Sesa Goa Siemens Bank of India Adani Enter Exide Inds Tata Chemicals Union Bank United Brew-$ TATAGLOBAL Reliance Infra HPCL Hindustan Zinc Reliance Power Reliance Comm SAIL Reliance Cap United Phos NHPC ADANI POWER Unitech Crompton Greav IDBI Bank Ashok Leyland Bharat Forge ABB GMR Infra Suzlon Energy HDIL

6003.32 5997.91 6018.67 5970.59 5948.94 5621.83 5443 5423.21 5147.09 5137.37 4942.26 4869.68 4670.54 4096.06 4030.36 4079.96 4000 3874.73 3689.83 3558.91 3560.28 3189.02 3013.22 2996.76 2814.67 2335.46 1253.04 1326.36

BIBLIOGRAPHY: www.bseindia.com
www.moneycontrol.com