What are the Sensex & the Nifty?

sensexBSENSEOTHER IMP. INFORMATIONS.

RAJESH KUMAR,CABM,GBPUATBatch-2009.(mba-agribusiness)

SOME IMPORTANT FACTBombay Stock Exchange is the oldest stock exchange in Asia.now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is the first stock exchange in the country which obtained permanent recognition in 1956 from the Government of India.Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers.. It is an index of 30 stocks representing 12 major sectors.BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification.BSE has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors.The World Council of Corporate Governance has awarded the Golden Peacock Global CSR Award for BSE's initiatives in Corporate Social Responsibility (CSR).

What are the Sensex & the Nifty?

Sensex :- Sensex is an "index". Index:- An index is basically an indicator. The Sensex is an indicator of all the major companies of the BSE(30 largest); The Nifty is an indicator of all the major companies of the NSE(50largest). On April 1, 1979,the base value of the Sensex is 100.If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down. The BSE is situated at Bombay and the NSE is situated at Delhi. These are the major stock exchanges in the country. There are other stock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE.Most of the stock trading in the country is done though the BSE & the NSE. Besides Sensex and the Nifty there are many other indexes like BSE Mid-cap Index. There are many other types of indexes.There is an index for the metal stocks. There is an index for the FMCG stocks. There is an index for the automobile stocks etc.

How to calculate BSE SENSEX?Calculation of sensex is made, taking into consideration, stock prices of 30 different BSE Listed companies.It is calculated on the basis of free-float market capitalization method.The methods to calculate stock market indexes keep on fluctuating from time to time.What is "market capitalization"?If you were to buy all the shares of a particular company, what is the amount you would have to pay? That amount is called the market capitalization! (simply multiply the current share price by the number of shares issued by the company! ). The company can be either be mid-capitalization, large-capitalization and small- capitalization based on the value of market capitalization.What is "free-float market capitalization"?Many different types of investors hold the shares of a company! The Govt. may hold some of the shares. Some of the shares may be held by the founders or directors of the company. Some of the shares may be held by the FDIs etc. etc! Open market shares that are free for trading by anyone are called free-float shares.

only the open market shares that are free for trading by anyone, are called the free-float shares. When we are calculating the Sensex, we are interested in these free-float shares!

Calculation of sensex comes into account, when investors are interested in free float shares.

What is "free-float market capitalization"?According the BSE, any shares that DO NOT fall under the following criteria, can be considered to be open market shares:Holdings by founders/directors/ acquirers which has control element Holdings by persons/ bodies with "controlling interest" Government holding as promoter/acquirer Holdings through the FDI Route Strategic stakes by private corporate bodies/ individuals Equity held by associate/group companies (cross-holdings) Equity held by employee welfare trusts Locked-in shares and shares which would not be sold in the open market in normal course.

What is "free-float market capitalization"?A company has to submit a complete report about who has how many of the companys shares to the BSE. On the basis of this, the BSE will decide the free-float factor of the company. The free-float factor is a very valuable number! If you multiply the "free-float factor" with the market cap of that company, you will get the free-float market cap which is the value of the shares of the company in the open market!

How the value of a sensex can be evaluated at a proper time?

So, having understood what the free float market cap is, now what? How do you find out the value of the Sensex at a particular point? Well, its pretty simple.First: Find outthe free-float market cap of all the 30 companies that make up the Sensex!

Second: Add all the free-float market caps of all the 30 companies!

Third: Make all this relative to the Sensex base. The value you get is the Sensex value!

How the value of a sensex can be evaluated at a proper time?The third step probably confused you. To understand it, you will need to understand ratios and proportions from 5th standard mathematics. Think of it this way:

Suppose, for a free-float market cap of Rs.100,000 Cr... the Sensex value is 4000Then, for a free-float market cap of Rs.150,000 Cr... the Sensex value will be..So, the Sensex value will be 6000 if the free-float market capcomes to Rs.150,000 Cr!

Now, there is only one question left to be answered, which 30 companies, why those 30 companies, why no other companies?

The 30 companies that make up the Sensex are selected and reviewed from time to time by an index committee. (academicians, mutual fund managers, finance journalists, independent governing board members and other participants in the financial markets)The main criteria for selecting the 30 stocks is as follows:

Market capitalization: The company should have a market capitalization in the Top 100 market capitalizations of the BSE. Also the market capitalization of each company should be more than 0.5% of the total market capitalization of the Index.

Trading frequency: The company to be included should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like share 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.

Industry representation: The companies should be leaders in their industry group.

Listed history: The companies should have a listing history of at least one year on BSE.

Track record: In the opinion of the index committee, the company should have an acceptable track record.Having understood all this, you now know how the Sensex is calculated.

What is NSE?

NSE was setup in 1995.Investors are offered to trade on companies by both Bombay Stock Exchange (BSE)And National Stock Exchange (NSE).BSE and NSE have their corporate offices in Mumbai.NSE is leading as better stock exchange for the last ten years on the basis of volume and quality trade.NSE was recognized as stock exchange by the Department of Company Affairs.NSE deals in trade related to treasury bills, government security and bonds issued by public sector companies.

Always invest money.(if u dont u r losing ur money day by day ex If you have Rs.1000 in your safe today and you keep it there for 10years or so, it will be worth a lot less after 10 years. If you can buy something for Rs.1000 today, you will probably require Rs.1500 to buy it 10 years from now. So do not keep money locked up in your safe)

3important things you must know and follow as an new investor!

Don't even consider "tips" that tell you about "hot stocks". Consider the source. Always use your own brain. And finally the most important tip!!!(Only invest money you can afford to lose!! )

understand that the above tips are tips for beginners. Once you really get into the stock market you do not need to follow these rules anymore. But if you are a new investor, you MUST follow these rules. They are for your own safety.

But then again, nothing comes free. Everything has a price. You will have to loose some money, make some bad decisions and then only will you really understand the market. You cannot understand the market by just looking at it from far. By following these rules, you will basically not loose too much!

Stock Picking - Which stocks to buy?

understood all the basics of the stock market and the risk involved, now we will go into stock picking and how to pick the right stock. Before picking the right stock you need to do some analysis.

There are two major types of analysis: 1. Fundamental Analysis (looks at the actual company and tries to figure out what the company price is going to be like in the future.).

2. Technical Analysis (look at the stocks chart, peoples buying behavior etc. to try and figure out what the stock price is going to be like in the future).What are stocks? Definition:

A stock represents a claim on the company's assets and earnings. As you acquire more stocks, your ownership stake in the company becomes greater.

Note: Some times different words like shares, equity, stocks etc. are used. All these words mean the same thing.

A stock is represented by a "stock certificate". This is a piece of paper that is proof of your ownership. However, now-a-days you could also have a demat account.

So what does ownership of a company give you? Holding a company's stock means that you are one of the many owners (shareholders) of a company and, as such, you have a claim to everything the company owns.

These earnings will be given to you. These earnings are called dividends and are given to the shareholders from time to time.

Why does a company issue stocks?

Its a tricky game!

Why would the founders share the profits with thousands of people when they could keep profits to themselves? The reason is that at some point every company needs to "raise money". To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock.

A company can borrow by taking a loan from a bank or by issuing bonds. Both methods come under "debt financing". On the other hand, issuing stock is called equity financing. Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way.

World Leading Stock ExchangesNASDAQ(National Association of Securities Dealers Automated Quotation):-Created in 1971, the Nasdaq was the world's first electronic stock market.(Plain and simple, a stock is a share in the ownership of a company. As you acquire more stocks, your ownership stake in the company becomes greater) .The Shanghai Stock Exchange Tokyo Stock Exchange (different indices are Nikkei 225 , Topix Index, J30 Index)Hong Kong Stock ExchangeLondon Stock ExchangeSEBIESTABLISHMENT OF SEBIThe Securities and Exchange Board of India was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.the basic functions of the Securities and Exchange Board of India as ..to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto

What does it mean Bullish or bearish?

Bullish means you think prices will rise. Bearish means you think they will fall. The terms presumably came from the way the two animals attack. Bulls lower their horns and raise them high. So if you think prices are moving from low to high, you are bullish, You would want to buy the shares of stock in order to profit.

Bears attack with their paws by swiping down from high to low. If you think prices are falling from high to low, you are bearish. You would short the shares in order to profit.

What are small cap, mid cap and large cap shares?

Cap is short for capitalization which is a measure by which we can classify a company's size. Big/large caps are companies which have a market cap between 10-200 billion dollars. Mid caps range from 2 billion to 10 billion dollars.

These might not be industry leaders but are well on their way to becoming one. Small caps are typically new or relatively young companies and have a market cap between 300 million to 2 billion dollars.

Although their track record won't be as lengthy as that of the mid to mega caps, small caps do present the possibility of greater capital appreciation, but at the cost of greater risk.

thank-you. have a nice day.