Sensex An Overview
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www.kgandhi.anindia.com
Sensex an Overview...!!! Stock Market A stock market is a physical place, where brokers gather to buy and sell stocks and other securities. It is also known as a stock exchange. A stock market enables the trading - buying and selling - of stocks. In some places, stock markets (Not Stock Exchange) still have a fixed location, but in the modern internet and technological world which we now live in, it can be a network of computers enabling buying and selling of stocks at agreed prices. Stock is generally considered to be a part ownership in a company. These companies are 'listed' or 'quoted' in the stock exchange which means that they are publicly traded and anyone can purchase a part ownership in that. In recent years, the role of some stock exchanges has changed to include derivatives - futures and options to you and me. These are part of a highly complex world which will not be explained here, but they are an enormous economy unseen by the population at large. In India we have two major stock exchanges; they are NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). Sensex is the Index of BSE and NIFTY is the index of NSE. In this article we will discuss about Sensex, such as history, working, objective, etc.
What is SENSEX? The SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-Weighted" index of 30 stocks representing a sample of large, well-established and financially sound companies. It is the oldest index in India and has gained a unique place in the collective awareness of investors. The index is widely used to measure the performance of the Indian stock markets. SENSEX is considered to be the pulse of the Indian stock markets. As the oldest index of the Indian Stock market, it offers time series data over a fairly long period of time (since 1978-79).
Objectives of SENSEX The Sensex is the benchmark index of the Indian Capital Markets with wide acceptance among individual investors, institutional investors, foreign investors and fund managers. The objectives of Sensex are following: • • •
To measure market movements Benchmark for funds performance For index based derivative products
www.kgandhi.anindia.com 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 depict the mood in the Indian Stock markets.
Benchmark for funds performance The inclusion of blue chip companies and the broad 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 substitute for the Indian stock markets. The country's first derivative product i.e. Index-Futures was launched on SENSEX.
Index Specification:
Base Year Base Index Value Date of Launch Method of calculation
1978-79 100 01-01-1986 Launched on full market capitalization method and effective September 01, 2003, calculation method shifted to free-float market capitalization. Number of Scrips 30 Index calculation 15 seconds frequency
SENSEX - Scrip Selection Criteria The general guidelines for selection of components (Scrips) in SENSEX are as follows:
Listed History: The scrip should have a listing history of at least 3 months at BSE. Exception may be considered if full market capitalization of a newly listed company ranks among top 10 in the
www.kgandhi.anindia.com list of BSE universe. In case, a company is listed on account of merger/ demerger/ amalgamation, minimum listing history would not be required.
Trading Frequency: The scrip should have been traded on each and every trading day in the last three months at BSE. Exceptions can be made for extreme reasons like scrip suspension etc.
Final Rank: The scrip should figure in the top 100 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.
Market Capitalization Weightage: The weightage of each scrip in SENSEX based on three-month average free-float market capitalization should be at least 0.5% of the Index.
Industry/Sector Representation: Scrip selection would generally take into account a balanced representation of the listed companies in the universe of BSE.
Track Record: In the opinion of the BSE Index Committee, the company should have an acceptable track record.
History of Replacement of Scrips in SENSEX
www.kgandhi.anindia.com
www.kgandhi.anindia.com
SENSEX Calculation Methodology SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is again multiplied by the free-float factor to determine the free-float market capitalization. The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the freefloat market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments occuring out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds. The value of SENSEX is circulated in real time.
www.kgandhi.anindia.com
Beta of SENSEX Scrips Beta calculates the sensitivity of a scrip movement relative to movement in the benchmark index i.e. Sensex. A Beta of one means that for every change of 1% in index, the scrip moves by 1%.
Performance of Sensex from 1991 Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Open 1,027.38 1,957.33 2,617.78 3,436.87 3,910.16 3,114.08 3,096.65 3,658.34 3,064.95 5,209.54 3,990.65 3,262.01 3,383.85 5,872.48 6,626.49 9,422.49 13,827.77 20,325.27 9,720.55
*As of 30/June/2009
High 1,955.29 4,546.58 3,459.07 4,643.31 3,943.66 4,131.22 4,605.41 4,322.00 5,150.99 6,150.69 4,462.11 3,758.27 5,920.76 6,617.15 9,442.98 14,035.30 20,498.11 21,206.77 -
Low 947.14 1,945.48 1,980.06 3,405.88 2,891.45 2,713.12 3,096.65 2,741.22 3,042.25 3,491.55 2,594.87 2,828.48 2,904.44 4,227.50 6,069.33 8,799.01 12,316.10 7,697.39 -
Close 1,908.85 2,615.37 3,346.06 3,926.90 3,110.49 3,085.20 3,658.98 3,055.41 5,005.82 3,972.12 3,262.33 3,377.28 5,838.96 6,602.69 9,397.93 13,786.91 20,286.99 9,647.31 14493.84*
www.kgandhi.anindia.com Graph
showing
the
Performance
of
Sensex
10 biggest falls in the Sensex history: Jan 21, 2008: The Sensex saw it’s highest ever loss of 1,408 points. The Sensex recovered to close at 17,605.40 after it tumbled to the day's low of 16,963.96, on high volatility as investors panicked following weak global cues amid fears of the US recession. Jan 22, 2008: The Sensex saw its biggest intra-day fall on Tuesday when it hit a low of 15,332, down 2,273 points. However, it recovered losses and closed at a loss of 875 points at 16,730. May 18, 2006: The Sensex registered a fall of 826 points (6.76 per cent) to close at 11,391, following heavy selling by FIIs, retail investors and a weakness in global markets. December 17, 2007: A heavy session of selling in the late noon deals saw the index sink to a low of 19,177 - down 856 points from the day's open. October 18, 2007: The intensity of selling increased towards the closing bell, and the index tumbled all the way to a low of 17,771 - down 1,428 points from the day's high. The Sensex finally ended with a heavy loss of 717 points (3.8%) at 17,998. January 18, 2008: Unabated selling in the last one hour of trade saw the index tumble to a low of 18,930 - down 786 points from the day's high. The Sensex finally ended with a heavy loss of 687 points (3.5%) at 19,014.
www.kgandhi.anindia.com November 21, 2007: Mirroring weakness in other Asian markets, the Sensex saw relentless selling. The index tumbled to a low of 18,515 - down 766 points from the previous close. The Sensex finally ended with a loss of 678 points at 18,603. The Nifty lost 220 points to close at 5,561. August 16, 2007: The Sensex, after languishing over 500 points lower for most of the trading sesion, slipped again towards the close to a low of 14,345. The index finally ended with a hefty loss of 643 points at 14,358. April 02, 2007: The Sensex opened with a huge negative gap of 260 points at 12,812 following the Reserve Bank of India decision to hike the cash reserve ratio and repo rate. Unabated selling, mainly in auto and banking stocks, saw the index drift to lower levels as the day progressed. August 01, 2007: The Sensex opened with a negative gap of 207 points at 15,344 amid weak trends in the global market and slipped deeper into the red. The Sensex finally ended with a hefty loss of 615 points at 14,936.
Closing Index calculation The closing SENSEX is calculated taking the weighted average of all the trades on Sensex constituents in the last 15 minutes of trading session. If a SENSEX Scrip has not traded in the last 15 minutes, the last traded price is taken for computation of the Index closure. If a Sensex constituent has not traded at all in a day, then its last day's closing price is taken for computation of Index closure. The use of Index Closure Algorithm avoids any intentional manipulation of the closing index value.
Regards, Kirang Gandhi Corporate Financial Planner www.kgandhi.anindia.com M-9271267305 ( Pune )
Sensex an Overview...!!! Stock Market A stock market is a physical place, where brokers gather to buy and sell stocks and other securities. It is also known as a stock exchange. A stock market enables the trading - buying and selling - of stocks. In some places, stock markets (Not Stock Exchange) still have a fixed location, but in the modern internet and technological world which we now live in, it can be a network of computers enabling buying and selling of stocks at agreed prices. Stock is generally considered to be a part ownership in a company. These companies are 'listed' or 'quoted' in the stock exchange which means that they are publicly traded and anyone can purchase a part ownership in that. In recent years, the role of some stock exchanges has changed to include derivatives - futures and options to you and me. These are part of a highly complex world which will not be explained here, but they are an enormous economy unseen by the population at large. In India we have two major stock exchanges; they are NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). Sensex is the Index of BSE and NIFTY is the index of NSE. In this article we will discuss about Sensex, such as history, working, objective, etc.
What is SENSEX? The SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-Weighted" index of 30 stocks representing a sample of large, well-established and financially sound companies. It is the oldest index in India and has gained a unique place in the collective awareness of investors. The index is widely used to measure the performance of the Indian stock markets. SENSEX is considered to be the pulse of the Indian stock markets. As the oldest index of the Indian Stock market, it offers time series data over a fairly long period of time (since 1978-79).
Objectives of SENSEX The Sensex is the benchmark index of the Indian Capital Markets with wide acceptance among individual investors, institutional investors, foreign investors and fund managers. The objectives of Sensex are following: • • •
To measure market movements Benchmark for funds performance For index based derivative products
www.kgandhi.anindia.com 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 depict the mood in the Indian Stock markets.
Benchmark for funds performance The inclusion of blue chip companies and the broad 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 substitute for the Indian stock markets. The country's first derivative product i.e. Index-Futures was launched on SENSEX.
Index Specification:
Base Year Base Index Value Date of Launch Method of calculation
1978-79 100 01-01-1986 Launched on full market capitalization method and effective September 01, 2003, calculation method shifted to free-float market capitalization. Number of Scrips 30 Index calculation 15 seconds frequency
SENSEX - Scrip Selection Criteria The general guidelines for selection of components (Scrips) in SENSEX are as follows:
Listed History: The scrip should have a listing history of at least 3 months at BSE. Exception may be considered if full market capitalization of a newly listed company ranks among top 10 in the
www.kgandhi.anindia.com list of BSE universe. In case, a company is listed on account of merger/ demerger/ amalgamation, minimum listing history would not be required.
Trading Frequency: The scrip should have been traded on each and every trading day in the last three months at BSE. Exceptions can be made for extreme reasons like scrip suspension etc.
Final Rank: The scrip should figure in the top 100 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.
Market Capitalization Weightage: The weightage of each scrip in SENSEX based on three-month average free-float market capitalization should be at least 0.5% of the Index.
Industry/Sector Representation: Scrip selection would generally take into account a balanced representation of the listed companies in the universe of BSE.
Track Record: In the opinion of the BSE Index Committee, the company should have an acceptable track record.
History of Replacement of Scrips in SENSEX
www.kgandhi.anindia.com
www.kgandhi.anindia.com
SENSEX Calculation Methodology SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is again multiplied by the free-float factor to determine the free-float market capitalization. The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the freefloat market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments occuring out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds. The value of SENSEX is circulated in real time.
www.kgandhi.anindia.com
Beta of SENSEX Scrips Beta calculates the sensitivity of a scrip movement relative to movement in the benchmark index i.e. Sensex. A Beta of one means that for every change of 1% in index, the scrip moves by 1%.
Performance of Sensex from 1991 Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Open 1,027.38 1,957.33 2,617.78 3,436.87 3,910.16 3,114.08 3,096.65 3,658.34 3,064.95 5,209.54 3,990.65 3,262.01 3,383.85 5,872.48 6,626.49 9,422.49 13,827.77 20,325.27 9,720.55
*As of 30/June/2009
High 1,955.29 4,546.58 3,459.07 4,643.31 3,943.66 4,131.22 4,605.41 4,322.00 5,150.99 6,150.69 4,462.11 3,758.27 5,920.76 6,617.15 9,442.98 14,035.30 20,498.11 21,206.77 -
Low 947.14 1,945.48 1,980.06 3,405.88 2,891.45 2,713.12 3,096.65 2,741.22 3,042.25 3,491.55 2,594.87 2,828.48 2,904.44 4,227.50 6,069.33 8,799.01 12,316.10 7,697.39 -
Close 1,908.85 2,615.37 3,346.06 3,926.90 3,110.49 3,085.20 3,658.98 3,055.41 5,005.82 3,972.12 3,262.33 3,377.28 5,838.96 6,602.69 9,397.93 13,786.91 20,286.99 9,647.31 14493.84*
www.kgandhi.anindia.com Graph
showing
the
Performance
of
Sensex
10 biggest falls in the Sensex history: Jan 21, 2008: The Sensex saw it’s highest ever loss of 1,408 points. The Sensex recovered to close at 17,605.40 after it tumbled to the day's low of 16,963.96, on high volatility as investors panicked following weak global cues amid fears of the US recession. Jan 22, 2008: The Sensex saw its biggest intra-day fall on Tuesday when it hit a low of 15,332, down 2,273 points. However, it recovered losses and closed at a loss of 875 points at 16,730. May 18, 2006: The Sensex registered a fall of 826 points (6.76 per cent) to close at 11,391, following heavy selling by FIIs, retail investors and a weakness in global markets. December 17, 2007: A heavy session of selling in the late noon deals saw the index sink to a low of 19,177 - down 856 points from the day's open. October 18, 2007: The intensity of selling increased towards the closing bell, and the index tumbled all the way to a low of 17,771 - down 1,428 points from the day's high. The Sensex finally ended with a heavy loss of 717 points (3.8%) at 17,998. January 18, 2008: Unabated selling in the last one hour of trade saw the index tumble to a low of 18,930 - down 786 points from the day's high. The Sensex finally ended with a heavy loss of 687 points (3.5%) at 19,014.
www.kgandhi.anindia.com November 21, 2007: Mirroring weakness in other Asian markets, the Sensex saw relentless selling. The index tumbled to a low of 18,515 - down 766 points from the previous close. The Sensex finally ended with a loss of 678 points at 18,603. The Nifty lost 220 points to close at 5,561. August 16, 2007: The Sensex, after languishing over 500 points lower for most of the trading sesion, slipped again towards the close to a low of 14,345. The index finally ended with a hefty loss of 643 points at 14,358. April 02, 2007: The Sensex opened with a huge negative gap of 260 points at 12,812 following the Reserve Bank of India decision to hike the cash reserve ratio and repo rate. Unabated selling, mainly in auto and banking stocks, saw the index drift to lower levels as the day progressed. August 01, 2007: The Sensex opened with a negative gap of 207 points at 15,344 amid weak trends in the global market and slipped deeper into the red. The Sensex finally ended with a hefty loss of 615 points at 14,936.
Closing Index calculation The closing SENSEX is calculated taking the weighted average of all the trades on Sensex constituents in the last 15 minutes of trading session. If a SENSEX Scrip has not traded in the last 15 minutes, the last traded price is taken for computation of the Index closure. If a Sensex constituent has not traded at all in a day, then its last day's closing price is taken for computation of Index closure. The use of Index Closure Algorithm avoids any intentional manipulation of the closing index value.
Regards, Kirang Gandhi Corporate Financial Planner www.kgandhi.anindia.com M-9271267305 ( Pune )
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