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2011

SENSEX

Introduction
WHAT IS SENSEX?
SENSEX is the short term for the words "Sensitive Index" and is associated with the Bombay (Mumbai) Stock Exchange (BSE).

What is it?
The SENSEX was first formed on 1-1-1986 and used the market capitalization of the 30 most traded stocks of BSE. The base was 1979 and taken as 100. The 30 scripts of 1986 and no more the same - some have been removed while some have been added. At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its composition to make sure it reflects current market conditions. Sensex is calculated methodology. using the "Free-float 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 Now, only the open market shares those are free for trading by anyone. These are called the free-float shares. When we are calculating the Sensex, we are interested in these free-float shares! A particular company may have certain shares in the open market and certain shares that are not available for trading in the open market. 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.

How is sensex calculated?


As per this methodology, 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 further 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 Free-float 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 arising out of corporate actions, replacement of scripts etc.

Sensex Calculation
1. 2. 3. 4. Find out the free float market cap of all the 30 companies that make Up the sensex! Add all the free float market caps of all the 30 companies! Make all this relative to the sensex base. The value you get is the sensex value!

To explain this further: Suppose that the sensex was made up of two companies, A and B. Company A, had 100 (free float) shares in the market in 1979 and the price of Rs. 10. Market cap= Rs. 1000 Company B, had 200 (free float) market in the market and the price of Rs.15. Market cap= Rs. 3000 So the Sensex had a total market cap of Rs. 4000 in 1979 and this is taken as index value = 100 Today company A has 1000 (free-float) shares and the current price is Rs. 150, while company B has 5000 (free-float) shares at Rs. 120. Hence market cap = Rs. 150,000 + Rs. 600,000 = Rs. 750,000. So the equation is: Market Cap of 4000 = Sensex value 100 Market cap of 750000=? Ans: Todays sensex value will be 18750

Scrip selection criteria


The general guidelines for selection of constituents in SENSEX are as follows: Equities of companies listed on Bombay Stock Exchange Ltd. (excluding companies classified in Z group, listed mutual funds, scrips suspended on the last day of the month prior to review date, scrips objected by the Surveillance department of the Exchange and those that are traded under permitted category) shall be considered eligible. Listing History: The scrip should have a listing history of at least three months at BSE. An exception may be granted to one month, if the average free-float market capitalization of a newly listed company ranks in the top 10 of all companies listed at BSE. In the event that a company is listed on account of a merger / demerger / amalgamation, a minimum listing history is not required. 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. Companies that have reported revenue in the latest four quarters from its core activity are considered eligible. From the list of constituents selected through Steps 1-4, the top 75 companies based on free-float market capitalization (avg. 3 months) are selected as well as any additional companies that are in the top 75 based on full market capitalization (avg. 3 months). The filtered list of constituents selected through Step 5 (which can be greater than 75 companies) is then ranked on absolute turnover (avg. 3 months).

Any company in the filtered, sorted list created in Step 6 that has Cumulative Turnover of >98%, are excluded, so long as the remaining list has more than 30 scrips. The filtered list calculated in Step 7 is then sorted by free float market capitalization. Any company having a weight within this filtered constituent list of <0.50% shall be excluded. All remaining companies will be sorted on sector and sub-sorted in the descending order of rank on free-float market capitalization. Industry/Sector Representation: Scrip selection will generally attempt to maintain index sectoral weights that are broadly in-line with the overall market. Track Record: In the opinion of the BSE Index Committee, all companies included within the SENSEX should have an acceptable track record.

Major advantages of Free-float Methodology


A Free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market. Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index. A Free-float index aids both active and passive investing styles. It aids active managers by enabling them to benchmark their fund returns vis- -Vis an investible index. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the passive managers as it enables them to track the index with the least tracking error. Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. This improves market coverage and sector coverage of the index. For example, under a Fullmarket capitalization methodology, companies with large market capitalization and low free-float cannot generally be included in the Index because they tend to distort the index by having an undue influence on the index movement. However, under the Free-float Methodology, since only the free-float market capitalization of each company is considered for index calculation, it becomes possible to include such closely-held companies in the index while at the same time preventing their undue influence on the index movement. Globally, the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX have adopted the same.

MSCI, a leading global index provider, shifted all its indices to the Free-float Methodology in 2002. The MSCI India Standard Index, which is followed by Foreign Institutional Investors (FIIs) to track Indian equities, is also based on the Free-float Methodology. NASDAQ-100, the underlying index to the famous Exchange Traded Fund (ETF) QQQ is based on the Free-float Methodology.

Sensex Falls
Some major single-day falls of the Sensex have occurred on the following dates January 21, 2008 --- 1,408.35 points Oct 24, 2008---1070.63 points March 17, 2008 --- 951.03 points July 6, 2009 --- 870 points January 22, 2008 --- 857 points February 11, 2008 --- 833.98 points May 18, 2006 --- 826 points October 10, 2008 --- 800.10 points March 13, 2008 --- 770.63 points December 17, 2007 --- 769.48 points January 7, 2009 --- 749.05 points March 31, 2007 --- 726.85 points October 6, 2008 --- 724.62 points October 17, 2007 --- 717.43 points September 15, 2008 --- 710.00 points January 18, 2007 --- 687.82 points November 21, 2007 --- 678.18 points August 16, 2007 --- 642.70 points August 17, 2009 --- 626.71 points June 27, 2008 --- 600.00 points November 12, 2010 --- 432 Points November 16, 2010 --- 444.55 Points

November 19, 2010 --- 345.20 Points

Code

Name

Sector

Adj. Factor 0.55

Weight in Index (%) 0.77

500410

ACC

Housing Related Finance

500010

HDFC

0.90

5.21

500510

Larsen & Toubro

Capital Goods

0.90

6.85

Comp anies Listed in Sense x

532500

Maruti Suzuki

Transport Equipments

0.50

1.71

500900

Sterlite Industries

Metal, Metal Products, and Mining Healthcare

0.45

2.39

524715

Sun Pharmaceutical Industries Tata Consultancy Services Tata Power

0.40

1.03

532540

Information Technology

0.25

3.61

500400

Power

0.70

1.63

500325

Reliance Industries

Oil & Gas

0.50

12.94

Milestone of Sensex

1000, July 25, 1990 - On July 25, 1990, the Sensex touched the fourdigit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results. 2000, January 15, 1992 - On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh. 3000, February 29, 1992 - On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by Manmohan Singh. 4000, March 30, 1992 - On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling. 5000, October 11, 1999 - On October 8, 1999, the Sensex crossed the 5,000-mark as the Bharatiya Janata Party-led coalition won the majority in the 13th Lok Sabha election. 6000, February 11, 2000 - On February 11, 2000, the information technology boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006. 7000, June 21, 2005 - On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capital and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time. 8000, September 8, 2005 - On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index the Sensex - crossed the 8000 level following brisk buying by foreign and domestic funds in early trading. 9000, December 9, 2005 - The Sensex on November 28, 2005 crossed 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors. 10,000, February 7, 2006 - The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10,000-mark on February 7, 2006. 11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed 11,000 and touched a peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points. 12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed 12,000 and touched a peak of 12,004 points during mid-session at the Bombay Stock Exchange for the first time.

13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 for the first time. It touched a peak of 13,039.36 and finally closed at 13,024.26. 14000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000. 15,000, July 6, 2007 - The Sensex on July 6, 2007 crossed 15,000 mark. 16,000, September 19, 2007 - The Sensex on September 19, 2007 crossed the 16,000 mark. 17,000, September 26, 2007 - The Sensex on September 26, 2007 crossed the 17,000 mark for the first time. 18,000, October 9, 2007 - The Sensex on October 9, 2007 crossed the 18,000 mark for the first time. 19,000, October 15, 2007 - The Sensex on October 15, 2007 crossed the 19,000 mark for the first time. 20,000, October 29, 2007 - The Sensex on October 29, 2007 crossed the 20,000 mark for the first time. 21,000, Jan 08, 2008 - The Sensex on January 8, 2008 touched all time peak of 21078 before closing at 20873. November 5, 2010 - The Sensex on November 5, 2010 closes at 21,004.96 with highest peak in two years.

ACKNOWLEDGEMENT

We the students of SHRI CHINAI COLLEGE OF COMMERCE AND ECONOMICS from S.Y.B.COM (ACCOUNTING & FINANCE), Have a great pleasure in presenting a complete PROJECT on Sensex very satisfactory and appreciable manner. Our efforts have been a success with due co-operation of our group, teachers & guides without which a project of such magnitude would not have been possible within the given time. We would like to thank our respected project guide PROF. Hasan for his guidance and support throughout project. In all it was a united effort which made this project a successful one.

Index

1. Introduction 2. What is free float market Capitalization? 3. How is sensex calculated? 4. Sensex Calculation 5. Scrip selection criteria 6. Major advantages of Free-float Methodology 7. Sensex Falls 8. Companies Listed in Sensex 9. Milestone of Sensex

Biblography

Websites
1. www.google.com 2. www.moneycontrol.com 3. www.wikipedia.com 4. www.googleimages.com