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SENSEX

What is SENSEX?

The sensex short form of BSE-sensitive index, is a “market


capitalization weighted” index of 30 stocks representing a
sample of large well established and financially sound
companies.
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.
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.
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.
Key points of BSE
Base year 1978-79
Base index value 100
Date of launch 01-01-1986
Method of calculation Launched on full market capitalization method
shifted to free floated market capitalization.

No of scrips 30

Index calculation frequency 15 seconds

Historical values for Index,PriceEarnings,Price to book value ratio and


SENSEX dividend yield %
Criteria for listing of scrips
 Quantitative criteria:-
 Market capitalization
 Liquidity
• Trading frequency
• Number of trades
• Value of share traded
 Continuity
 Industry representation
 Listed history
 Qualitative criteria:-
 Track record
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. (Market Capitalization would
be averaged for last six months)
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.
Continuity
Whenever the composition of the index is
changed, the continuity of historical series of
index values is re-established by correlating the
value of the revised index to the old index (index
before revision). The back calculation over the last
one-year period is carried out and correlation of
the revised index to the old index should not be
less than 0.98. This ensures that the historical
continuity of the index is maintained.
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.
Qualitative Criteria

• Track Record:
In the opinion of the Index Committee, the
company should have an acceptable track
record.
30 Most Traded Companies Of BSE

• ACC

• AIRTEL

• BHEL

• DLF

• GRASIM
30 Most Traded Companies Of
BSE
• HDFC

• HDFC BANK

• HINDALCO

• ICICI

• INFOSYS
30 Most Traded Companies Of BSE

• ITC LIMITED

• JAYPEE

•L&T

•M&M

• MARUTI
30 Most Traded Companies Of BSE

• NTPC

• ONGC

• RELIANCE INFRA

• RANBEXY

• RELIANCE COMM
30 Most Traded Companies Of BSE

RIL

SUN PHARMA

SBI

STERLITE

TATA MOTORS

30 Most Traded Companies Of BSE

• WIPRO

• HUL

• TCS

• TATA STEEL

• TATA POWER
Calculation Of SENSEX
An index is calculated daily by tracking the share prices of it’s
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
195*350= Rs.68,250 million.
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/TMC of previous day

Thus, the index is 10,998 = (10,635×26,175/25,310) implying that the


index rose by 363 points over the previous day.
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 in the previous question ,
company A’s market capitalization was Rs. 68,250 million as it had
issued 195 million shares @ 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(350×75 million shares).
1 Day Technical Analysis Chart of
Indian stock market BSE Sensex
Index
5 Day Technical Analysis Chart of
Indian stock market BSE Sensex Index
1 Year Technical Analysis Chart of
Indian stock market BSE Sensex Index
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. So a bullish market
implies a rising market since that is when the bulls
or the buyers enter the field. Similarly, a bearish
market refers to a falling market attracting the
bears or the sellers. One may play the bull’s role
with respect to one security and a bear’s role with
respect to another as one may anticipate that the
price of the former will rise and that of the latter
will fall.
Financial Derivatives
The primary objective of investors in the capital
market is to maximize returns at level if risk
acceptable to them. The portfolio needs to be
managed for risk as much as it needs to be
managed for returns. And this is where financial
derivatives come in .Financial derivatives are
contracts that are designed to minimize risk for the
investors on their investments. For example,
consider a share warrant issued by a company. A
share warrant gives the holder the right, but not an
obligation to buy an underlying share at ascertain
price in future. Thus a share warrant is a derivative
of it’s underlying security.
Financial Futures
Financial futures are contracts or obligations that
help to ‘lock-in’ the price at which one wishes to
buy or sell an asset in the future, to protect against
price changes. A future contract with equity shares
of an individual company as underlying assets like
share, Equity indices, debt derivative instruments
is known as stock futures. Similarly, underlying
asset is stock market index, the contract is known
as index future.
10 Biggest falls in SENSEX
No. Date Registered Fall
1 Jan 21, 2008 1408.35
2 Oct 24, 2008 1070.63
3 March 17, 2008 951.03
4 Jan 22, 2008 857
5 Feb 11, 2008 833.98
6 May 18, 2006 826
7 Oct 10, 2008 800.10
8 March 13, 2008 770.63
9 Dec 17, 2007 769.48
10 Jan 07, 2009 749.05

SENSEX CRASH
5 Biggest Single-day Gains

No. Date Close Prv Cls Net Chg % Chg


1 Jan 25, 2008 18361.66 17221.70 1139.92 6.6

2 Nov 14, 2007 19929.06 19035.48 893.58 4.7

3 Oct 23, 2007 18492.84 17613.99 878.85 5.0

4 Jan 23, 2008 17594.10 16729.94 864.13 5.2

5 Oct 09, 2007 18280.24 17491.39 788.85 4.5


Key Staff Of BSE

• Chairman: Mr.Jagdish Capoor

• CEO: Mr.Rajnikant Patel