What is Sensex?

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.

Base year

Base index value

Date of launch

Method of calculation

1978-79

100

01-01-1986Launched on full market capitalization method shifted to free floated market capitalization.

No of scrips 30

Index calculation frequency

15 seconds

Historical values for SENSEX

Index,PriceEarnings,Price to book value ratio and dividend yield %

Key points of BSE

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.

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


• HDFC

• HDFC BANK

• HINDALCO

• ICICI

• INFOSYS


• ITC LIMITED

• JAYPEE

• L & T

• M & M

• MARUTI


• NTPC

• ONGC

• RELIANCE INFRA

• RANBEXY

• RELIANCE COMM


• RIL

• SUN PHARMA

• SBI

• STERLITE

• TATA MOTORS


• 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 SENSEXNo. 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

Documents

What is Sensex?