INDEX

Barometer of market
Index?????
• Index is a tool which measures change

• CPI – Consumer Price Index

• WPI – Wholesale Price Index
- Measures inflation

• Human development Index

- Measures development of a country

Index?????
• More than 6000 Companies are listed on BSE and NSE

• Measuring performance of each stock is tough & difficult

to infer anything from it

• Market index – similar stocks are grouped on the basis of

Market Capitalization, Sector etc.

What is Sensex/ Nifty
• Sensex /Nifty is an index

• The index basically an indicator

• It gives you a general idea about whether most of the

stocks have gone up or most of the stocks have gone

down
Stock market index
• Value of group of stocks – (value of index)

• Sensex – Basket of top 30 stocks on BSE

• Nifty – Basket of top 50 stocks on NSE

• Grouped on the basis of market capitalization

Sensex Composition as on 2 Aug 2019
• Asian Paints • HUL • ONGC
• Axis Banks • ICICI Bank • Power Grid Corp
• Bajaj Auto • Indusind Bank • Reliance
• Bajaj Finance • Infosys • SBI
• Bharti Airtel • ITC • Sun Pharma
• Coal India • Kotak Mahindra • Tata Motors
• HCL Technology • Larsen & Toubro • Tata Steel
• HDFC • M&M • TCS
• HDFC Bank • Maruti Suzuki • Vedanta
• Hero Motocorp • NTPC • Yes Bank
Index Value

Index value =

[Free float market capitalization of top group stocks/ Base

market capitalization] * Base index value

Market capitalization = current share price x total no. of

shares
Free Float Factor Methodology
• The free float is a measure of actual availability of stocks
of a company in the market for public investment

• Free float factor is used for calculating free float market

capitalization of a company

• DVR shares are not considered for the purpose

• Free float market capitalization is used for the computaion

of indices
 Excluded from free float calculation
• Shares held by founders/directors/acquirers which have
control element
• Shares held by persons/ bodies with "Controlling Interest"
• Shares held by the Government(s) as promoters / acquirers
• 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
Entities considered as non-free float
• Promoter and promoter group

• Public locked-in shares holding (as per share holding

pattern (SHP)) filed by the company under clause 35 of
the listing agreement

• GDR – Promoter holding only

Free Float Factor
No. of Shares %
Total Equity Shares 2,50,00,000 100

Category No. of shares %

Promoter and Promoter
1,20,00,000 48.00
Group
Promoter Depository
10,000 0.04
Receipts (DR)
Public Shareholders
75,000 0.30
Locked in
Strategic holding 25,000 0.10
Total 48.44

Free Float factor in the above case is (100-48.44)/100 = 0.51

Free Float Capitalization
• Suppose a company has 1000 shares in total

• 200 are held by promoters

• 800 share are available for trading to the general public

• These 800 shares are called “free floating” shares

• Suppose the price of each share is Rs. 120

Cont…
• Total Market Capitalization

• 1000 shares x Rs. 120 = Rs. 1,20,000

• Free float market capitalization

• 800 shares x Rs.120 = Rs. 96000

Sensex Calculation
• The index consists 2 tocks: Stock A and Stock B

• Company A details

Total Shares 1000

Promoter’s holding 200
Public Holding 800
Current Market price 120
Total Market capitalization 1,20,000
Free float market capitalization 96000
Sensex Calculation
• The index consists 2 tocks: Stock A and Stock B

• Company B details

Total Shares 2000

Promoter’s holding 1000
Public Holding 1000
Current Market price 200
Total Market capitalization 4,00,000
Free float market capitalization 2,00,000
Sensex Calculation
• As of today
• Total Market Capitalization ( of A and B)
1,20,000+4,00,000 = 5,20,000

• Free float market capitalization (of A and B)

96000+2,00,000 = 2,96,000

• The year 1978-79 is considered the base year of the

index with a value set to 100

• Suppose at that time the market capitalization of the

stocks was 60,000
Sensex Calculation
Time Market Capitalization Index value

1978-79 60,000 100

Today 2,96,000 ?

Thus the value of the index today =

2,96,000/60000 x 100 = 493.33

The factor 100/60,000 is called index divisor

Index Value
• Each stock has a different price & so each stock has a
different weightage in the index
• E.g. 5 stocks from an Index “z” = 5k

A 1000 20% A 1200 22%

5.4 k
B 2000 B 1900
8% change
C 500 C 700

D 700 D 700

E 800 E 900
Types of Indices
• Stock Indices
- Benchmark Indices e.g. Sensex, Nifty
- Sectoral Indices e.g. Nifty Bank
- Market Cap Indices e.g. BSE small cap
- Broad Market Indices e.g. BSE 100

• Bond Indices
- Debt market indices e.g. Nifty AAA Corp. Bond

• Commodity Indices
- MCX Metal
Use of Market Index
• A barometer for market behavior

• A benchmark for portfolio/funds performance

• An underlying in derivative instruments like index futures

• In passive fund management by index funds

Desirable attributes of an Index
• It should capture the behavior of a large variety of
different portfolios in the market

• The stocks included in the index should be highly liquid

• High trading frequency

• It should be professionally maintained

• The Index set should be reviewed, and brought in line with the
current state of market
 Important indices in the world
Name of the Country No. of Stocks Base Year Base Value
Index

S&P CNX India 50 1995 1000

NIFTY

S&P SENSEX India 30 1978-79 100

NASDAQ USA 100 1985 125

FTSE UK 100 1984 1000

HANG SENG Hong Kong 50 1969 100

DOW JONES USA 30 1928

NIKKEI Japan 225 1949

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