SENSEX
Presented by
Mahesh Airan
AEO, ICSI
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.
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
Capitalizationweighted” methodology of 30
component
stocks.
Since
September 1, 2003, SENSEX
is being calculated on freefloat 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.
Key points of BSE
Base year
Base index value
Date of launch
Method of calculation
1978-79
100
01-01-1986
No of scrips
30
Index calculation
frequency
15 seconds
Launched on full market capitalization method
shifted to free floated market capitalization.
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.
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 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).
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.
Formula to calculate Sensex
• Sensex = Free Float market Capitalization
Index Divisor
Index Divisor = previous day free float Market Capitalizaton
previous day sensex value
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.
Example 2
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
MC 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.
30 Most Traded Companies
Of BSE
• ACC
• AIRTEL
• BHEL
• DLF
• GRASIM
Contd.
• HDFC
• HDFC BANK
• HINDALCO
• ICICI
• INFOSYS
Contd.
• ITC LIMITED
• JAYPEE
• L&T
• M&M
• MARUTI
Contd.
• NTPC
• ONGC
• RELIANCE INFRA
• RANBEXY
• RELIANCE COMM
Contd.
• RIL
• SUN PHARMA
• SBI
• STERLITE
• TATA MOTORS
Contd.
• WIPRO
• HUL
• TCS
• TATA STEEL
• TATA POWER
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
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.
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.
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.
5 Day Technical Analysis Chart of
Indian stock market BSE Sensex Index
Monthly 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.