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BSE SENSEX

INTRODUCTION
Bombay Stock Exchange is the oldest stock exchange in Asia.
What is now popularly known as the BSE was established as
"The Native Share & Stock Brokers' Association" in 1875.
Over the past 135 years, BSE has facilitated the growth of the
Indian corporate sector by providing it with an efficient capital
raising platform. Today, BSE is the world's number 1 exchange
in the world in terms of the number of listed companies (over
4900). It is the world's 5th most active in terms of number of
transactions handled through its electronic trading system. And
it is in the top ten of global exchanges in terms of the market
capitalization of its listed companies (as of December 31, 2009).
The companies listed on BSE command a total market
capitalization of USD Trillion 1.28 as of Feb, 2010.BSE is the first
exchange in India and the second in the world to obtain an ISO
9001:2000 certification. It is also the first Exchange in the
country and second in the world to receive Information Security
Management System Standard BS 7799-2-2002 certification for
its BSE On-Line trading System (BOLT). Presently, we are ISO
27001:2005 certified, which is a ISO version of BS 7799 for
Information Security. The BSE Index, SENSEX, is India's first and
most popular Stock Market benchmark index. Exchange traded
funds (ETF) on SENSEX, are listed on BSE and in Hong Kong.
Futures and options on the index are also traded at BSE.
The 'BSE SENSEX' is a value-weighted index composed of
30 stocks and was started on January 1, 1986. The Sensex is
regarded as the pulse of the domestic stock markets in India. It
consists of the 30 largest and most actively traded stocks,

and the base year of BSE- SENSEX is 1978-79. One can identify the booms and busts of the Indian equity market through SENSEX.55 0. The base value of the sensex is 100 on April 1.5 00 5000 HDFC Finance 0.21 10 5001 HDFC Bank Finance 0. the SENSEX has become one of the most prominent brands in the country COMPANIES LISTED IN BSE COD NAME SECTOR ADJ. 1979.03 .75 1.35 3.representative of various sectors.02 68 Limited Related 5003 Grasim Industries Diversified 0.25 1.85 5. SENSEX has captured all these happenings in the most judicious manner.77 10 Related 5001 BHEL Capital 0. WEIGHT E FACTOR IN INDEX (%) 5004 ACC Housing 0. on the Bombay Stock Exchange. it provides the time series data over a fairly long period of time (from 1979 onwards). Small wonder.35 3 54 5328 DLF Universal Housing 0.90 5. As the oldest index in the country.26 03 Goods 5324 Bharti Airtel Telecom 0. These companies account for around fifty per cent of the market capitalization of the BSE.

Metal 0.50 1.90 6.75 1.08 96 Limited 5321 ICICI Bank Finance 1 7.75 40 Limited.86 74 5002 Infosys Information 0.03 55 .70 4.15 2.43 82 Limited.26 09 Technology 5008 ITC Limited FMCG 0.99 75 5325 Jaiprakash Housing 0.80 5001 Hero Honda Motors Transport 0.15 2.50 1. Equipments 5004 Hindalco Industries Metal.55 1.71 00 Equipments 5325 NIIT Technologies Information 0.25 32 Associates Related 5005 Larsen & Toubro Capital 0.85 10 Goods 5005 Mahindra & Transport 0.03 41 Technology 5325 NTPC Power 0.85 10.50 2. Products & Mining 5006 Hindustan Lever FMCG 0.7 1.71 20 Mahindra Limited Equipments 5325 Maruti Suzuki Transport 0.

66 70 Equipments 5004 Tata Power Power 0.39 00 Metal Products.88 70 Metal Products & Mining 5076 Wipro Information 0.03 04 Technology 5003 ONGC Oil & Gas 0.61 85 Technology .5003 NIIT Information 0.19 90 Infrastructure 5001 State Bank of India Finance 0. 0. 0.87 12 5327 Reliance Telecom 0.20 1.50 12.61 40 Services Technology 5005 Tata Motors Transport 0.15 2.94 25 5003 Reliance Power 0.20 3.63 00 5004 Tata Steel Metal.40 1.65 1.92 12 Communications 5003 Reliance Industries Oil & Gas 0.70 1.45 2. and Mining 5247 Sun Healthcare 0.35 0.45 4.70 2.57 12 5009 Sterlite Industries Metal.25 3.55 1.03 15 Pharmaceutical Industries 5325 Tata Consultancy Information 0.

STOXX. SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. The base year of SENSEX was taken as 1978-79.CALCULATION OF SENSEX SENSEX. 2003. The "free-float market capitalization-weighted" methodology is a widely followed index construction methodology on which majority of global equity indices are based. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. wherein. It is scientifically designed and is based on globally accepted construction and review methodology. was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing large. S&P and Dow Jones use the free-float methodology. SENSEX is calculated using the "Free-float Market Capitalization" methodology. all major index providers like MSCI. well-established and financially sound companies across key sectors. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization. the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. first compiled in 1986. Since September 1. This is often indicated by the notation 1978-79=100. FTSE. The calculation of SENSEX involves dividing the free-float market capitalization of 30 companies in the Index by . The base period of SENSEX is 1978-79 and the base value is 100 index points. SENSEX is being calculated on a free-float market capitalization methodology.

in one value. The dollar-linked indices are useful to overseas investors. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions. This was facilitated by the introduction of a dollar-linked index in which the formula for calculation of index is suitably modified to express the current and base market values in dollar terms. The scope for dollar-linked index emerged from the background of Indian equity markets increasingly getting integrated with global capital markets and the need to assess the market movements in terms of international benchmarks. are used by the trading system to calculate SENSEX on a continuous basis. as it helps them measure their 'real returns' after providing for exchange rate fluctuations. . the changes in both the stock prices and the foreign exchange variation. During market hours. replacement of scrips etc. prices of the index scrips. The Divisor is the only link to the original base period value of the SENSEX. A need was felt to design a yardstick by which these growth values are also measured in Dollar terms. Dollex-30 All BSE indices reflects the growth in market value of constituent stocks over the base period in Rupee terms. at which latest trades are executed. Such an index would reflect.a number called the Index Divisor.

BSE introduced Dollex-100. The formula for calculating the index is: Dollex = Index Value (In local currency) * Base rupee-US$ rate Current rupee-US$ rate Scrip Selection Criteria 1. scrips objected by the Surveillance department of the Exchange and those that are traded under permitted category) shall be considered eligible. on May 22. Dollex-100 and Dollex-200 are calculated and displayed through BSE On-line trading terminals (BOLT) by taking into account real-time Re.Dollex-30. a dollar-linked version of BSE-200 was launched on May 27. . was launched on July 25. Dollex-30. scrips suspended on the last day of the month prior to review date.e. Reserve Bank of India. listed mutual funds. (excluding companies classified in Z group. These indices were initially calculated at the end of the trading session by taking into consideration day's rupee/ US$ reference rate as announced by India 's Central Bank i. 2006./US$ Exchange rate. a dollar-linked version of SENSEX. 1994. Equities of companies listed on Bombay Stock Exchange Ltd. a dollar linked version of BSE- 100. 2001 whereas Dollex-200.

In the event that a company is listed on account of a merger / demerger / amalgamation. Companies that have reported revenue in the latest four quarters from its core activity are considered eligible. Listing History: The scrip should have a listing history of at least three months at BSE. if the average free-float market capitalization of a newly listed company ranks in the top 10 of all companies listed at BSE. 3. 5. 6. 4. 7. so long as the remaining list has more than 30 scrips. . a minimum listing history is not required. sorted list created in Step 6 that has Cumulative Turnover of >98%. are excluded. The scrip should have been traded on each and every trading day in the last three months at BSE. the top 75 companies based on free-float market capitalisation (avg. 3 months) are selected as well as any additional companies that are in the top 75 based on full market capitalization (avg. Exceptions can be made for extreme reasons like scrip suspension etc. An exception may be granted to one month. 3 months). From the list of constituents selected through Steps 1-4. Any company in the filtered.2. 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.

It generally excludes promoters' holding. all companies included within the SENSEX should have an acceptable track record. Free-float Methodology Free-float methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in the index. . Industry/Sector Representation: Scrip selection will generally attempt to maintain index sectoral weights that are broadly in- line with the overall market. Free- float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market. All remaining companies will be sorted on sector and sub- sorted in the descending order of rank on free-float market capitalization. 10. The filtered list calculated in Step 7 is then sorted by free float market capitalization. the market capitalization of each company in a free-float index is reduced to the extent of its readily available shares in the market. 11. Track Record: In the opinion of the BSE Index Committee.8. In other words. Any company having a weight within this filtered constituent list of <0.50% shall be excluded 9. government holding. strategic holding and other locked-in shares that will not come to the market for trading in the normal course.

Shares held by persons/ bodies with "Controlling Interest" 3. Locked-in shares and shares which would not be sold in the open market in normal course. Equity held by Employee Welfare Trusts 8. Equity held by associate/group companies (cross-holdings) 7. Shareholding of investors that would not. Subsequently all BSE indices with the exception of BSE- PSU index have adopted the free-float methodology. The remaining shareholders fall under the Free-float category. in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free- float. Specifically. Strategic stakes by private corporate bodies/ individuals 6. 2. the following categories of holding are generally excluded from the definition of Free-float: 1.Shares held by founders/directors/ acquirers which has control element. Shares held by Government as promoter/acquirer 4. Holdings through the FDI Route 5. Major advantages of Free-float Methodology .

since only the free-float market capitalization of each company is considered for index calculation. under a Full-market capitalization methodology. Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index. This improves market coverage and sector coverage of the index. Being a perfectly replicable portfolio of stocks. 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. 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.1. . 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. Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. 3. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. It aids active managers by enabling them to benchmark their fund returns vis-Ã -vis an investible index. under the Free-float Methodology. A Free-float index aids both active and passive investing styles. 4. 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. However. 2. For example.

Free-float factor is a multiple with which the total market capitalization of a company is adjusted to arrive at the Free-float market capitalization. is also based on the Free-float Methodology. the underlying index to the famous Exchange Traded Fund (ETF) . BSE determines the Free-float factor for each company based on the detailed information submitted by the companies in the prescribed format.5. . which is filled and submitted by all index companies on a quarterly basis. FTSE. it is rounded-off to the higher multiple of 5 and each company is categorized into one of the 20 bands given below. a leading global index provider. MSCI.QQQ is based on the Free-float Methodology. NASDAQ-100. The MSCI India Standard Index. shifted all its indices to the Free-float Methodology in 2002. which is followed by Foreign Institutional Investors (FIIs) to track Indian equities. Determining Free-float Factors of Companies BSE has designed a Free-float format. Once the Free-float of a company is determined. A Free-float factor of say 0.55 means that only 55% of the market capitalization of the company will be considered for index calculation. S&P and STOXX have adopted the same. the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI. Globally.

45 >90 .70 >20 .80 >30 .90% 0.65% 0.25% 0.95 >45 .90 >40 . Steps for calculating SENSEX First: Find out the “free-float market cap” of all the 30 companies that make up the Sensex.10 >55 .15 >60 . Second: Add all the “free-float market cap’s” of all the 30 companies.30 >75 .65 >15 .20% 0.40 >85 .35% 0. you will get the “free-float market cap” which is the value of the shares of the company in the open market.35 >80 .50% 0.60 >10 .80% 0.40% 0.55% 0.95% 0.30% 0. The “free-float market cap” is the total cost of buying all the shares in the open market.70% 0.85 >35 .75% 0.5% 0.10% 0.00 If we multiply the "free-float factor" with the “market cap” of that company.Free-float Bands: % Free-Float Free-Float Factor % Free-Float Free- Float Factor >0 .20 >65 .45% 0. .25 >70 .55 >5 .85% 0.15% 0.100% 1.75 >25 .50 >95 .05 >50 .60% 0.

Third: Make all this relative to the Sensex base. a discontinuity would arise between the current value of the index and its previous value despite the non-occurrence of any economic activity of substance. the Sensex value is 4000 Then.150. The value you get is the Sensex value. for a “free-float market cap” of Rs.000 Cr. for a “free-float market cap” of Rs. Suppose. Adjustments for Rights Issues . Rights and Newly Issued Capital SENSEX calculation needs to be adjusted for issue of Bonus or Rights shares If no adjustments were made. At the BSE Index Cell .100.150. the Sensex value will be 6000 if the “free-float market cap” comes to Rs. Adjustment for Bonus.000 Cr. which is used to alter market capitalization of the component stocks to arrive at the SENSEX value. the base value is adjusted. the Sensex value will be 100000 = 150000 4000 ? So.000 Cr. The BSE Index Cell keeps a close watch on the events that might affect the index on a regular basis and carries out daily maintenance of all BSE Indices.

Therefore. included in the compilation of the index.When a company. Other Issues Base Market capitalization adjustment is required when new shares are issued by way of conversion of debentures. there is no change in the Base Market capitalization. included in the compilation of the index. the free-float market capitalization of that company is increased by the number of additional shares issued based on the theoretical (ex-right) price. the market capitalization of that company does not undergo any change. issues bonus shares. only the 'number of shares' in the formula is updated. spin-offs etc. Adjustments for Bonus Issue When a company. issues right shares. or when equity is reduced by way of buy-back of shares. Base Market capitalization Adjustment . An offsetting or proportionate adjustment is then made to the Base Market capitalization (see 'Base Market capitalization Adjustment' below). corporate restructuring etc. mergers.

say Rs. Rs. .2450 crores and the aggregate market capitalization of all the shares included in the index before the right issue is made is. The "New Base Market capitalization " will then be: 2450 x (4781+100) = Rs.2501. 2501.100 crores. is Rs.The formula for adjusting the Base Market capitalization is as follows: New Base Market capitalization = Old Base Market capitalization * New Market capitalization Old Market capitalization To illustrate.24 crore will be used as the Base Market capitalization for calculating the index number from then onwards till the next base change becomes necessary. suppose a company issues right shares which increases the market capitalization of the shares of that company by say. say.24 crores 4781 This figure of Rs.4781 crore. The existing Base Market capitalization (Old Base Market capitalization).