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PROJECT REPORT ON

“COMPUTATION OF INDICES ( SENSEX AND NIFTY)”

SUBMITTED

RASHTRASANT TUKADOJI MAHARAJ NAGPUR UNIVERSITY, NAGPUR

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF

BACHELOR OF BUSINESS ADMINISTRATION

BY

Ku. Swati V. Nikhare

UNDER THE GUIDANCE OF

Shri. Mahesh Joshi

Department of Business Management,

C. P. & Berar Education Society’s College,

Ravinagar, Nagpur.

2009-2010

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CERTIFICATE

This is to certify thatKu. Swati V. Nikhare is a bonafied student of Department of Business Management, C. P. & Berar E. S. College, Nagpur and studying in B.B.A. Finalyear and has completed his project titled

“COMPUTATION OF INDICES ( SENSEX AND NIFTY)”

This project report is submitted to RTM Nagpur University in partial fulfillment of

academic requirement for the degree of Bachelor of Business Administration during the

academic year 2009-2010.

I find the work comprehensive, complete and of sufficiently high standard to warrant its

presentation.

Shri. Mahesh Joshi Dr. Satish S. Shastri

Guide Director

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DECLARATION

I have carried out the work presented in this project report titled

“COMPUTATION OF INDICES ( SENSEX AND NIFTY)”

under the guidance of Shri. Mahesh Joshi , Lecturer, Dept. of Business Management, C.

P. & Berar E. S. College, Ravinagar, Nagpur during the academic year 2009-2010. This

work has not been submitted for any other examination conducted by RTM Nagpur

University or for any other purpose.

Date : Ku. Swati V. NikharePlace BBA III

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ACKNOWLEDGEMENT

I take this opportunity to convey my gratitude to those who provided me help during the

course of my study.

It is indeed a great pleasure to express my sincere thanks and great sense of gratitude of

Shri. Mahesh Joshi for his invaluable guidance timely help and suggestions and constant

encouragement during my project work.

Date : Ku. Swati V. Nikhare

Place

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TABLE OF CONTENT

SR NO. PARTICULARS PAGENO

1 INTRODUCTION 7

2 OBJECTIVE OF STUDY

3 RESEARCH METHODOLOGY

4 DATA COLLECTION

5 COMPUTATION OF INDICES(SENSEX &NIFTY)

6 DATA TABULATION

7 DATA ANALYSIS

8 CONCLUSION

9 BIBLOGRAPHY

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INTRODUCTION

1. Index

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A statistical measure of change in an economy or a securities market. In the case of financial

markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in

terms of a change from a base value. Thus, the percentage change is more important than the

actual numeric value.

Sub-index

A group of securities that is part of an index but is also tracked separately as a smaller,

separate index.

Types of indices

Stock market indices may be classed in many ways. A 'world' or 'global' stock market

index includes (typically large) companies without regard for where they are domiciled or

traded. Two examples areMSCI World and S&P Global 100 .

Types of Index

• Broad-Market Index:

This consists of all the large, liquid stocks of the country and becomes the benchmark for

the entire capital market of the country. An example for this is the S&P CNX 500.

• Specialized Index:

We can either have Industry or Sector specific Index for any particular sector of the

economy which then serves as the benchmark for that particular industry or we can havean index for the highly liquid stocks. Taking an example for an industry specific index we

have the S&P Banking Index which is a capitalization-weighted index of 26 domestic

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equities traded on the New York Stock Exchange and NASDAQ, The stocks in the Indexare high-capitalization stocks representing a sector of the S&P 500. Similarly, The S&P

CNX Nifty is a relevant example for an index composed of highly liquid stocks

A national index

A national index represents the performance of the stock market of a given nation—and by proxy, reflects investor sentiment on the state of its economy. The most regularly

quoted market indices are national indices composed of the stocks of large companieslisted on a nation's largest stock exchanges, such as the American S&P 500 , the Japanese

Nikkei 225 , and the BritishFTSE 100 .

Market Value-Weighted Index

The most common type of index is called market value-weighted index. What this meansis that the index measures the total value of all the outstanding stock issued by the various

companies in the index. The reasoning behind a market value index such as the S&P500*, is that companies with larger capitalizations or value will have a larger weighting

in the index and will “count more” than smaller companies. It would not make sense for

a very small company to have the same weighting in an index as a large company such asIBM. One of the drawbacks of a market-weighted index is that sometimes one company

or one type of industry can make up a very large portion of the index. In the technology

bubble of the late 90’s, the tech portion of most broad based indices became quitedominant.

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Price-Weighted Index

Another less common type of index is called price-weighted. . This means that the index

is calculated using a stock price instead of the company value. The big problem with this

type of index is that a company that has a stock price of $100 will count twice as much asa company with a stock price of $50. There is a formula used to calculate these type of indices to account for stock splits indexes, aside from giving overall grades to particular

economies, can also be used as investment instruments. Mutual funds which are based onindexes are called passively managed mutual funds.

Determinants of a Stock Index

Following parameters should be taken into picture before one constructs a stock index:

• Liquidity –

Liquidity of stocks as measured by the “impact cost” criterion which determines the costfaced when actually trading the index. For example if the current market price of a stock

is Rs 200 and a trader purchases it at Rs 202 (due to involved transaction costs) then themarket impact cost is 1% and the stock is considered highly liquid for lower impact cost.

EG.

• Diversification –

Diversification, by putting stocks of various sectors that reflect the economy, is used to

cancel out stock noise which is essentially the individual stock fluctuations and to reduceinvestor’s risks. An index must thus have a balanced representation of all sectors.

• Optimum size –

More stocks lead to greater diversification but the limiting factor is the size of the index.Increasing number of stocks in an index from 10 to say 30 gives a sharp reduction in risks

but increasing the number beyond a point does very little in risk reduction. Further itmight lead to addition of illiquid stocks. For example, the optimal size for BSE Sensex is

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funds that passively invest in the market i.e. the portfolio returns of the index funds issame as that of the Index. Since the Index is an indicator of the overall mood of the

investors in the secondary market, it helps a company answer questions like is it the righttime to take out an IPO, how to price the issue, etc.It acts as a signal to the government of

the ‘feel good’ factor prevailing in the economy. As much as the finance ministry may

want to ignore it, the performance of the stock market right after the introduction of the budget gives an immediate feedback to the Finance Minister about the acceptability of

the budget. However, the market index is a double edged sword. Because the index isinfluenced by expectations of the future performance of the stocks, it leads to a self

fulfilling prophecy. Suppose an investor thinks that the stock of the company is going togo down and this feeling prevails across the market then everyone would want to get out

of the company’s stock. This will automatically lead to the stock prices crashing. TheStock Index can often also act as a trigger to herd mentality. Any downturn in the market

would be reinforced by the collective action of the investors to hedge against any lossesand get out of the market. This would further depress the market. This herd mentality is

often used to the advantage of speculators. The speculator buys long thus creating waves

in the market that the stock he is investing in is ‘hot’. Thus everyone would follow suitgiving the speculator a good short term profit margin. The stock index is often more a

representation of investors’ perceptions (noise element) rather than real news. The dotcom bubble of 2000 is a case in point. There was a rush of investment in anything even

remotely connected with information-technology driving up the stock prices way abovewhat they should have been according to their P/E ratios. Thus it can be seen that though

the index is a popular investor’s guide, it is riddled with imperfections which can oftenconfuse rather than help. The index popularly used in India is the NSE CNX Nifty. There

are processes afoot to reduce the pure noise element and speculative margin of the index.The basic problem arises due to imperfect information reflected by the inclusion of

illiquid stocks in the calculation of the index. Illiquid stock is one which is not activelytraded in the market or has been lying dormant for a long time. Inclusion of such stocks

leads to problems of stale prices, bid-ask bounce and ease in manipulation.

Bid-ask bounce:

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Illiquid stocks have a wide bid-ask spread. Thus even when no news is breaking, when astock price is not changing, the `bid-ask bounce' is about prices bouncing up and down

between bid and ask. Such changes are spurious in nature.

State prices:

A stock index is supposed to represent the state of the stock market at the closing time(3:30pm in NSE) on a particular day. However the last traded price of an illiquid stock (if

included in the index) may be even a week old thus distorting the index. Hence to makean index useful, there has to be continuous evaluation of the stocks listed and any stock

which remains inactive for a period of time should be de-listed or removed from theindex. A prudent investor is one who exercises caution while interpreting the market

index, taking into account all its inconsistencies.

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Examples of index of stock exchange with respect to india

India

• S&P CNX Nifty

• CMIE COSPI

• BSE 200

• BSE 500

• BSE TECK

• BSE IT

• BSE FMCG

• BSE CD

• BSE Metal

• BSE PSU

• BSE mid-cap

• BSE small cap

• BSE Auto• BSE Pharma

• BSE REALTY Home Page

• Nifty Jr.

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Indices Profile (Sensex & Nifty)

BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index

composed of 30 stocks that started January 1, 1986. It consists of the 30 largest and most

actively traded stocks, representative of various sectors, on the Bombay Stock

Exchange . These companies account for around one-fifth of the market capitalization of the BSE. The base value of the sensex is 100 on April 1, 1979, and the base year of BSE-

SENSEX is 1978-79.

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At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modifyits composition to make sure it reflects current market conditions. The index is calculated

based on afree-float capitalization method; a variation of the market cap method. Insteadof using a company's outstanding shares it uses its float, or shares that are readily

available for trading. The free-float method, therefore, does not include restricted stocks,

such as those held by promoters, government and institutional investors.

The index has increased by over ten times from June 1990 to the present. Using

information from April 1979 onwards, the long-run rate of return on the BSE Sensexworks out to be 18.6% per annum, which translates to roughly 9% per annum after

compensating for inflation .

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SENSEX - The Barometer of Indian Capital Markets

SENSEX, first compiled in 1986, was calculated on a "Market Capitalization-Weighted"

methodology of 30 component stocks representing large, well-established and financiallysound companies across key sectors. The base year of SENSEX was taken as 1978-79.

SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. It is scientifically designed and is based on globally

accepted construction and review methodology. Since September 1, 2003, SENSEX is being calculated on a free-float market capitalization methodology. The "free-float market

capitalization-weighted" methodology is a widely followed index constructionmethodology on which majority of global equity indices are based; all major index

providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-floatmethodology.

The growth of the equity market in India has been phenomenal in the present decade.

Right from early nineties, the stock market witnessed heightened activity in terms of various bull and bear runs. In the late nineties, the Indian market witnessed a huge frenzy

in the 'TMT' sectors. More recently, real estate caught the fancy of the investors. SENSEXhas captured all these happenings in the most judicious manner. One can identify the

booms and busts of the Indian equity market through SENSEX. As the oldest index in thecountry, it provides the time series data over a fairly long period of time (from 1979

onwards). Small wonder, the SENSEX has become one of the most prominent brands in

the country.

Index Specification:

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Base Year 1978-79

Base IndexValue

100

Date of Launch 01-01-1986

Method of

calculation

Launched on full market capitalization method and effective Septembe

calculation method shifted tofree-float market capitalization .Number of

scrips

30

Companies in the Sensex

List of BSE Sensex companies provides the full list of companies that have been part of the BSE Sensex since its inception in 1986 (baselined to 1979).

(as of June 29, 2009)

Code Name SectorAdj.

Factor

500410 ACC Housing Related 0.55500103 BHEL Capital Goods 0.35532454 Bharti Airtel Telecom 0.35532868 DLF Universal Limited Housing related 0.25500300 Grasim Industries Diversified 0.75500010 HDFC Finance 0.90500180 HDFC Bank Finance 0.85500182 Hero Honda Motors Transport Equipments 0.50

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Ltd.

500440 Hindalco Industries Ltd.Metal,Metal Products &Mining

0.65

500696 Hindustan LeverLimited

FMCG 0.50

532174 ICICI Bank Finance 1.00500209 Infosys Information Technology 0.85500875 ITC Limited FMCG 0.70532532 Jaiprakash Associates Housing Related 0.50500510 Larsen & Toubro Capital Goods 0.90

500520Mahindra & Mahindra

Limited Transport Equipments 0.75

532500 Maruti Udyog Transport Equipments 0.50532555 NTPC Power 0.15500312 ONGC Oil & Gas 0.20

532712Reliance

CommunicationsTelecom 0.35

500325 Reliance Industries Oil & Gas 0.50500390 Reliance Infrastructure Power 0.65500112 State Bank of India Finance 0.45

500900 Sterlite IndustriesMetal, Metal Products, andMining

0.45

524715Sun Pharmaceutical

IndustriesHealthcare 0.40

532540

Tata Consultancy

Services Information Technology 0.25500570 Tata Motors Transport Equipments 0.55500400 Tata Power Power 0.70

500470 Tata SteelMetal, Metal Products &Mining

0.70

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507685 Wipro Information Technology 0.20

NSE (National stock exchange)

S&P CNX Nifty is a well diversified50 stock index accounting for 21 sectors of the

economy. It is used for a variety of purposes such as benchmarking fund portfolios,index based derivatives and index funds.

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S&P CNX Nifty is owned and managed byIndia Index Services and Products Ltd. (IISL),which is a joint venture between NSE and CRISIL. IISL is India's first specialised company

focused upon the index as a core product. IISL has a Marketing and licensing agreement withStandard & Poor's (S&P), who are world leaders in index services.

• The total traded value for the last six months of all Nifty stocks is approximately 54%of the traded value of all stocks on the NSE

• Nifty stocks represent about 62.50% of the Free Float Market Capitalization as onSept 30, 2009.

• Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.16%• S&P CNX Nifty is professionally maintained and is ideal for derivatives trading

From June 26, 2009, S&P CNX Nifty is computed based on free float methodology. 20

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S&P Nifty

CNX nifty Junior

S&P CNX DEFTY

S&P CNX 500

CNX IT

Bank Nifty

CNX 100

CNX 500

CNX mid-cap

Nifty mid-cap 50

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OBJECTIVE OF STUDY

1. To understand the concept of computation of indices (sensex & nifty) and market

capitalization.

2. To study the Indian financial market (BSE & NSE).

3. To find the proper method for calculating indices in stock market.

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Research methodology

The data of BSE & NSE and their indices have been collected from the economic timesof India as well as the respective web sites of BSE & NSE.

Few popular investment periodicals, such as Dalal streets and capital market have also been referred.

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DATA COLLECTION METHOD

1. PRIMARY DATA: The information which is been collected directly from the

resources is called primary data. The data that is available with us is been

received from internet, books, news paper, magazines, etc. which have beenmentioned in the bibliography. There is no primary information (data) with the

researcher.

2. SECONDARY DATA: The data has been collected referring books,

bulletines, facts information. To achive the exactness in the information

researcher has collected secondary data.

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5. Computation of indices(

(Sensex &Nifty)

Sensex

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 30component 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 thecompany. 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 allIndex adjustments arising out of corporate actions, replacement of scrips etc. During

market hours, prices of the index scrips, at which latest trades are executed, are used bythe trading system to calculate SENSEX on a continuous basis.

Dollex-30

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BSE also calculates a dollar-linked version of SENSEX and historical values of thisindex are available since its inception. (For more details click 'Dollex series of BSE

indices' )

SENSEX - Scrip Selection Criteria

The general guidelines for selection of constituents in SENSEX are as follows:

1. 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 listedcompany ranks among top 10 in the list of BSE universe. In case, a company is

listed on account of merger/ demerger/ amalgamation, minimum listing history

would not be required.2. Trading Frequency:

The scrip should have been traded on each and every trading day inthe last three months at BSE. Exceptions can be made for extreme reasons like

scrip suspension etc.

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3. 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.

4. 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.

5. Industry/Sector Representation:Scrip selection would generally take into account a balanced

representation of the listed companies in the universe of BSE.

6. Track Record:

In the opinion of the BSE Index Committee, the company should have anacceptable track record.

Understanding Free-float Methodology

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Free-float methodology refers to an index construction methodology that takes intoconsideration only the free-float market capitalization of a company for the purpose of

index calculation and assigning weight to stocks in the index. Free-float marketcapitalization takes into consideration only those shares issued by the company that are

readily available for trading in the market. It generally excludes promoters' holding,

government holding, strategic holding and other locked-in shares that will not come tothe market for trading in the normal course. In other words, the market capitalization of

each company in a free-float index is reduced to the extent of its readily available sharesin the market.

Subsequently all BSE indices with the exception of BSE-PSU index have adopted the

free-float methodology.

Major advantages of Free-float Methodology

• A Free-float index reflects the market trends more rationally as it takes intoconsideration 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-Ã -vis aninvestible 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 Full-market capitalization

methodology, companies with large market capitalization and low free-float

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cannot generally be included in the Index because they tend to distort the index byhaving an undue influence on the index movement. However, under the Free-float

Methodology, since only the free-float market capitalization of each company isconsidered 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 anindustry best practice and all major index providers like MSCI, FTSE, S&P and

STOXX have adopted the same. MSCI, a leading global index provider, shiftedall its indices to the Free-float Methodology in 2002. The MSCI India Standard

Index, which is followed by Foreign Institutional Investors (FIIs) to track Indianequities, is also based on the Free-float Methodology. NASDAQ-100, the

underlying index to the famous Exchange Traded Fund (ETF) - QQQ is based onthe Free-float Methodology.

Definition of Free-float

Shareholding of investors that would not, in the normal course come into the open marketfor trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float. Specifically, the following categories of holding are generally excluded from the

definition of Free-float:

• Shares held by founders/directors/ acquirers which has control element

• Shares held by persons/ bodies with "Controlling Interest"

• Shares held by Government as promoter/acquirer

• Holdings through the FDI Route

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• 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.

Determining Free-float Factors of Companies

BSE has designed a Free-float format, which is filled and submitted by all indexcompanies on a quarterly basis.. BSE determines the Free-float factor for each company

based on the detailed information submitted by the companies in the prescribed format.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. Once the Free-float of acompany is determined, it is rounded-off to the higher multiple of 5 and each company is

categorized into one of the 20 bands given below. A Free-float factor of say 0.55 meansthat only 55% of the market capitalization of the company will be considered for index

calculation.

Free-float Bands:

% Free-Float Free-Float Factor % Free-Float Free-Float Factor>0 - 5% 0.05 >50 - 55% 0.55

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>5 - 10% 0.10 >55 - 60% 0.60>10 - 15% 0.15 >60 - 65% 0.65>15 - 20% 0.20 >65 - 70% 0.70>20 - 25% 0.25 >70 - 75% 0.75

>25 - 30% 0.30 >75 - 80% 0.80>30 - 35% 0.35 >80 - 85% 0.85>35 - 40% 0.40 >85 - 90% 0.90>40 - 45% 0.45 >90 - 95% 0.95>45 - 50% 0.50 >95 - 100% 1.00

Index Closure Algorithm

The closing SENSEX on any trading day is computed taking the weighted average of all

the trades on SENSEX constituents in the last 30 minutes of trading session. If aSENSEX constituent has not traded in the last 30 minutes, the last traded price is taken

for computation of the Index closure. If a SENSEX constituent has not traded at all in aday, then its last day's closing price is taken for computation of Index closure. The use of

Index Closure Algorithm prevents any intentional manipulation of the closing indexvalue.

Maintenance of SENSEX

One of the important aspects of maintaining continuity with the past is to update the baseyear average. The base year value adjustment ensures that replacement of stocks in Index,

additional issue of capital and other corporate announcements like 'rights issue' etc. donot destroy the historical value of the index. The beauty of maintenance lies in the fact

that adjustments for corporate actions in the Index should not per se affect the indexvalues.

The BSE Index Cell does the day-to-day maintenance of the index within the broad index policy framework set by the BSE Index Committee. The BSE Index Cell ensures thatSENSEX and all the other BSE indices maintain their benchmark properties by striking a

delicate balance between frequent replacements in index and maintaining its historical

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continuity. The BSE Index Committee comprises of capital market expert, fundmanagers, market participants and members of the BSE Governing Board.

On-Line Computation of the Index

During trading hours, value of the Index is calculated and disseminated on real time

basis. This is done automatically on the basis of prices at which trades in Indexconstituents are executed.

Adjustment for Bonus, Rights and Newly Issued Capital

SENSEX calculation needs to be adjusted for issue of Bonus or Rights shares If noadjustments were made, 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. At the BSE Index Cell , the base value is adjusted, which is used to alter

market capitalization of the component stocks to arrive at the SENSEX value.

The BSE Index Cell keeps a close watch on the events that might affect the index on aregular basis and carries out daily maintenance of all the 19 Indices.

• Adjustments for Rights Issues

When a company, included in the compilation of the index, issues right shares, the

free-float market capitalization of that company is increased by the number of additional shares issued based on the theoretical (ex-right) price. An offsetting or

proportionate adjustment is then made to the Base Market capitalization (see'Base Market capitalization Adjustment' below).

• Adjustments for Bonus Issue

When a company, included in the compilation of the index, issues bonus shares,

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Therefore, there is no change in the Base Market capitalization, only the 'number of shares' in the formula is updated.

• Other Issues

Base Market capitalization adjustment is required when new shares are issued by

way of conversion of debentures, mergers, spin-offs etc. or when equity isreduced by way of buy-back of shares, corporate restructuring etc.

• Base Market capitalization Adjustment

The formula for adjusting the Base Market capitalization is as follows:

New Mkt. Cap.

New Base Mkt. Cap. = Old Base Mkt. Cap. x ---------------------------------------Old Mkt. Cap

For Example:

Suppose a company issues right shares which increases the market capitalization of theshares of that company by say, Rs.100 crores. The existing Base Market capitalization

(Old Base Market capitalization), say, is Rs.2450 crores and the aggregate marketcapitalization of all the shares included in the index before the right issue is made is, say

Rs.4781 crore. The "New Base Market capitalizaton " will then be:

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( 4781+100) crores

New Base Mkt. Cap = 2450 X ---------------------------------

4781

= 2501.24 crores

This figure of Rs. 2501.24 crore will be used as the Base Market capitalization for

calculating the index number from then onwards till the next base change becomesnecessary.

Index Review Frequency

The BSE Index Committee meets every quarter to discuss index related issues. In case of

a revision in the Index constituents, the announcement of the incoming and outgoingscrips is made six weeks in advance of the actual implementation of the revision of theIndex.

NIFTY

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S&P CNX Nifty

Method of Computation

S&P CNX Nifty is computed using market capitalization weighted method, wherein thelevel of the index reflects the total market value of all the stocks in the index relative to a

particular base period. The method also takes into account constituent changes in theindex and importantly corporate actions such as stock splits, rights, etc without affecting

the index value.

Base Date and Value

The base period selected for S&P CNX Nifty index is the close of prices on November 3,1995, which marks the completion of one year of operations of NSE's Capital Market

Segment. The base value of the index has been set at 1000 and a base capital of Rs.2.06trillion.

Criteria for Selection of Constituent Stocks

The constituents and the criteria for the selection judge the effectiveness of the index.Selection of the index set is based on the following criteria:

§ Liquidity (Impact Cost)

§ Floating Stock

§ Others

§ Liquidity (Impact Cost)

§ Floating Stock

§ Others

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List of S&P CNX NIFTY stocks

Liquidity (Impact Cost)

For inclusion in the index, the security should have traded at an average impact cost of 0.50% or less during the last six months for 90% of the observations for a basket size of

Rs. 2 Crores.

Impact cost is cost of executing a transaction in a security in proportion to the weightage

of its market capitalisation as against the index market capitalisation at any point of time.This is the percentage mark up suffered while buying / selling the desired quantity of a

security compared to its ideal price (best buy + best sell) / 2

Floating Stock

Companies eligible for inclusion in S&P CNX Nifty should have atleast 10% floating

stock. For this purpose, floating stock shall mean stocks which are not held by the promoters and associated entities (where identifiable) of such companies.

Others

a) A company which comes out with a IPO will be eligible for inclusion in the index, if it

fulfills the normal eligibility criteria for the index like impact cost, market capitalizationand floating stock, for a 3 month period instead of a 6 month period.

b) Replacement of Stock from the Index:

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A stock may be replaced from an index for the following reasons:

(i) Compulsory changes like corporate actions, delisting etc. In such a scenario, the

stock having largest market capitalization and satisfying other requirementsrelated to liquidity, turnover and free float will be considered for inclusion.

(ii) When a better candidate is available in the replacement pool, which can replace

the index stock i.e. the stock with the highest market capitalization in thereplacement pool has at least twice the market capitalization of the index stock

with the lowest market capitalization.

With respect to (2) above, a maximum of 10% of the index size (number of stocks in theindex) may be changed in a calendar year. Changes carried out for (2) above are

irrespective of changes, if any, carried out for (1) above.

From June 26, 2009, S&P CNX Nifty is computed using Free Float Market

Capitalisation weighted method, wherein the level of index reflects the free float

market capitalisation of all stocks in Index.

Index Maintenance

Index Maintenance plays a crucial role in ensuring stability of the Index as well as in

meeting its objective of being a consistent benchmark of the equity markets.

IISL has constituted anIndex Policy Committee , which is involved in policy andguidelines for managing the CNX Indices. TheIndex Maintenance Sub-committee

takes all decisions on addition/ deletion of companies in any Index.

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The index is reviewed every six months (on half-yearly basis) and a six weeks’ notice isgiven to the market before making changes to the index set.

Hedging Effectiveness

Exhaustive calculations have been carried out to determine the hedging effectiveness of

the 50-security index S&P CNX NIFTY against numerous randomly chosen equally-weighted portfolios of different sizes varying from 1 to 100 of smallcap, midcap and

largecap companies as well as many industry indices/sub-indices provided by CMIE. Itwas observed that the correlation (R2) for various portfolios and indices using monthly

returns data on the S&P CNX Nifty vis-a-vis other indices was significantly higher indicating that the S&P CNX Nifty had higher hedging effectiveness.

6.DATA TABULATION

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SENSEX (22/12/2009)

company industry Days close %change

Mkt. cap. Daysweight

PE

Relianceind

Diversified group 1018.80 0.22 151398 12.75 22.9

Infosys

tech

Computers – software 2501.55 -0.27 119715 10.08 22.7

L & T Cement ind 1617.35 0.50 97081 8.18 20.7ICICI

Bank

Banks – private sector 825.9 1.95 91977 7.75 23.4

HDFC Finance – housing 2563.90 -0.03 64656 5.44 29.2ITC Cigarettes 246.85 1.11 63609 5.36 26.0HDFC

Bank

Banks – private sector 1649.50 -0.30 60539 5.10 29.5

SBI Banks – public sector 2166.05 0.89 55819 4.70 10.8Bhartiairtel

Tele communication-service

322 3.84 40162 3.38 13.7

ONGC Oil drilling andexploration

1161.80 -1.28 39188 3.30 17.0

BHEL Engineering –Heavy 2287.30 -0.04 36143 3.04 32.3Tata steel Steel- Large 577.60 3.97 33855 2.85 -Tata

consult

Information technology 724.10 -1.19 33710 2.84 24.1

Hind.Unilev er

FMCG 261.25 -0.50 27311 2.30 28.7

Sterliteinds

Metals-nonferrous 806.50 0.55 26718 2.25 24.7

Tata power

Power-generation/distribution

1320.45 0.30 20892 1.76 30.4

Tatamotors

Auto-LCVs/HCVs 725.80 -0.07 20764 1.75 18.2

Wipro Computer-software 678.90 -0.01 20575 1.73 23.8Maruti

Suzuki

Auto-cars and jeeps 1530.55 0.40 20249 1.71 27.5

M & M Auto-cars and jeeps 1009.85 -1.04 20006 1.68 18.1 NTPC Power

-generation/distribution214.95 3.27 18610 1.57 20.4

Hindalco Aluminium 142.15 3.65 17859 1.50 17.1Jaiprakash

Asso

Construction and

contracting-civil

142.15 -0.98 16368 1.38 15.5

Grasim

Inds.

Diversified 2373.65 -0.89 16282 1.37 7.5

Hero

Honda

Auto-2 & 3 wheeler 1690.10 1.20 15202 1.28 18.5

Reliance

infra

Power

-generation/distribution

1035.20 0.79 14638 1.23 19.2

DLF Construction and

contracting-real estate

355.60 1.47 12884 1.08 36.2

Reliance Tele communication- 171.45 1.57 11557 0.97 6.8

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Sensex 23/12/2009company industry Days close %

change

Mkt. cap. Days

weight

PE

Reliance

ind

Diversified group 1065.90 4.62 158397 12.92 24.0

Infosys

tech

Computers – software 2583.60 3.28 123641 10.09 23.4

L & T Cement ind 1671.85 3.37 100353 8.19 21.4ICICI Banks – private sector 861.45 4.30 95930 7.83 24.4

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Bank HDFC Finance – housing 2638.65 2.92 66541 5.43 30.0ITC Cigarettes 253.65 2.75 65362 5.33 26.7HDFC

Bank

Banks – private sector 1690.80 2.50 62055 5.06 30.2

SBI Banks – public sector 2209.45 2.00 56937 4.65 11.0Bharti

airtel

Tele communication-

service

326.10 1.27 40673 3.32 13.9

ONGC Oil drilling andexploration

1178.60 1.45 39755 3.24 17.2

BHEL Engineering –Heavy 2354.85 2.95 37211 3.04 33.3Tata steel Steel- Large 603.30 4.45 35361 2.88 -Tata

consult

Information

technology

744.35 2.80 34658 2.83 24.8

Hind.

Unilev er

FMCG 264.60 1.28 27661 2.26 29.1

Sterlite

inds

Metals-nonferrous 847.20 5.05 28067 2.29 26.0

Tata power

Power-generation/distribution

1338.50 1.37 21178 1.73 30.8

Tata

motors

Auto-LCVs/HCVs 746.90 2.91 21367 1.74 18.8

Wipro Computer-software 693.25 2.11 21010 1.71 24.3Maruti

Suzuki

Auto-cars and jeeps 1558.60 1.83 20620 1.68 28.0

M & M Auto-cars and jeeps 1040.55 3.04 20615 1.68 18.6 NTPC Power

-generation/distributio

n

229.90 6.96 19904 1.62 21.8

Hindalco Aluminium 153.20 7.77 19247 1.57 18.4JaiprakashAsso

Construction andcontracting-civil

146.95 3.38 16920 1.38 16.0

GrasimInds.

Diversified 2418.25 1.88 16588 1.35 7.7

HeroHonda

Auto-2 & 3 wheeler 1703.45 0.79 15322 1.25 18.9

Relianceinfra

Power -generation/distributio

n

1069.50 3.31 15123 1.23 19.8

DLF Construction and

contracting-real estate

365.90 2.90 13258 1.08 37.3

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Reliancecommu

Tele communication-service

174.75 1.92 11780 0.96 6.9

Sun pharma

Pharmaceuticals 1538.00 2.29 11560 0.94 22.4

ACC Cement- major 856.05 2.17 8645 0.71 10.4Sensex

Total

17231.1

1

3.23 122573

8

100.00 22.10

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Nifty (22/12/2009)

Company industries days

cl

o

se

%

c

h

a

n

ge

Mkt-

ca

p

Days

w

ei

g

h

t

PE

Reliance

indu

strie

s

Diversified group 1019.2

0

0.22 151457 10.63 22.9

Infosys

tech

Computers-software 2502.4

0

-0.31 119755 8.41 22.7

L&T Cement inds 1616.9

0

0.43 97054 6.81 20.7

ICICI

Ban

k

Banks-private sector 825.70 1.83 91949 6.45 23.4

HDFC Finance- housing 2562.8

0

-0.06 64628 4.54 29.2

ITC Cigarettes 246.25 0.59 63455 4.45 25.9

HDFC

BAN

K

Bank-private sector 1646.5

5

-0.38 60431 4.24 29.4

SBI Banks-public sector 2165.9

5

0.94 55816 3.92 10.8

Bharti

airte

l

Telecommunication

service

321.95 3.82 40156 2.82 13.7

ONGC Oil drilling &

exploration

1161.0

5

-1.43 39163 2.75 17.0

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Nifty (23/12/2009)

Company industries days close %

chan

ge

Mkt-cap Days

wei

g

ht

PE

Reliance

indus

tries

Diversified group 1066.20 4.61 158441 10.48 24.0

Infosys

tech

Computers-software 2583.75 3.25 123649 8.42 23.4

L&T Cement inds 1672.00 3.41 100362 6.83 21.4

ICICI

Bank

Banks-private sector 862.60 4.47 96058 6.54 24.4

HDFC Finance- housing 2645.05 3.21 66702 4.54 30.1

ITC Cigarettes 253.60 2.98 65349 4.45 26.7

HDFC

BAN

K

Bank-private sector 1690.35 2.66 62038 4.22 30.2

SBI Banks-public sector 2210.00 2.03 56951 3.88 11.0

Bharti

airtel

Telecommunication

service

326.25 1.34 40692 2.77 13.9

ONGC Oil drilling &

exploration

1178.95 1.54 39737 2.71 17.2

BHEL Engineering-heavy 2365.05 3.36 37372 2.54 33.4

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Tata steel Steel-large 604.05 4.65 35405 2.41 --

Tata

consu

lt

Information

technology

746.55 3.11 34761 2.37 24.9

Jindal steel Steel sponge iron 726.95 1.89 27899 1.90 52.5

Hind.

Unile

ve

Personal care 264.30 1.15 27630 1.88 29.1

Sterlin ind Metals-non ferrous 847.70 5.13 28083 1.91 26.0

Axis bank Banks-private sector 982.40 1.26 25232 1.72 18.2

Tata

powe

r

Power

generation/dist

ribution

1339.40 1.37 21192 1.44 30.8

Tata

moto

rs

Auto LCVs/HCVs 746.45 2.85 21354 1.45 18.7

Wipro Computer software 693.50 2.18 21017 1.43 24.3

Maruti

Suzu

ki

Auto cars & jeeps 1558.35 1.77 20616 1.40 28.0

M&M Auto cars & jeeps 1042.15 3.21 20646 1.41 18.6

IDFC Finance term lending

instutions

155.90 2.84 20206 1.38 23.4

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Cairn Oil drilling &

exploration

279.10 2.67 12006 0.82 68.7

Reliance

com

mu

Telecommunication

service

174.90 1.95 11790 0.80 6.9

Sun

phar

ma

Pharmaceuticals 1544.10 2.74 11606 0.79 22.5

Unitech Construction &

contracting

81.90 2.95 11498 0.78 26.1

Rel capital Finance-investments 849.25 3.53 9723 0.66 25.4

Idea

cellul

ar

Telecommunication

service

59.95 2.74 9454 0.64 18.4

ACC Cement-major 855.80 2.20 8643 0.59 10.4

Siemens Telecommunication

equipment

571.20 3.81 8633 0.59 18.4

Ranbaxy

lab

Pharmaceuticals 528.85 1.13 8022 0.55 --

BPCL Refineries 610.70 0.43 7891 0.54 4.5

Ambuja

ceme

nt

Cement-major 99.15 3.28 8085 0.55 12.3

HCL

techn

o

Computer software 371.30 3.25 7948 0.54 23.9

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ABB Electric equipment 770.85 1.82 7823 0.53 37.3

Power gird Power-

generation/dist

ribution

109.55 2.86 6289 0.43 23.1

Reliance

powe

r

Power-

generation/dist

ribution

147.05 2.12 5364 0.37 58.4

Suzlon

energ

y

Engineering-heavy 88.30 4.81 5248 0.36 13.6

Nifty Total 5144.60 3.18 1469365 100.00 22.91

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7.DATA ANALYSIS

The formula for calculating sensex :-

From the given table:

New Mkt. cap.

New Base Mkt. Cap = Old base Mkt. Cap. X -----------------------------

Old Mkt, Cap.

1225738 + 100

= 16692.00 X --------------------------------

1187535

New Base Mkt. Cap. = 17230.38 Cr.

The formula for calculating nifty :

From the given table:

New Mkt. cap.53

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New Base Mkt. Cap = Old base Mkt. Cap. X -----------------------------

Old Mkt, Cap.

1469365 + 100

= 4985.85 X -------------------------------------

1424600

New Base Mkt. Cap. = 5142.87 Cr.

Tabulation of sensex of last 19 Months

Sensex Closing Value

May 08 16415

June 08 13461

July 08 14356

Aug 08 14565

Sep 08 12860

Oct 08 9788

Nov 08 9093

Dec 08 9647Jan 09 9424

Feb 09 8891

Mar 09 9708

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April 09 11404

May 09 14625

June09 14494

July 09 15670

Aug 09 15666

Sep 09 17127

Oct 09 15896

Nov 09 17198

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Tabulation of Nifty of last 11 Months

Nifty Closing Value

Feb-09 2763.65

Mar-09 3020.25

Apr-09 3473.95

May-09 4448.95

Jun-09 4291.1

Jul-09 4636.45

Aug-09 4662.1

Sep-09 5083.95

Oct-09 4711.7

Nov-09 5032.7

Dec-09 5178.4

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8.CONCLUSION

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9.BIBLIOGRAPHY

WEBSITE

• www.bseindia.com

• www.sebi.gov.in

• www.nseindia.com

BOOK

• Stock Exchange And Investment By Raghunthan

• Financial Management By Rastogi

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MAGZINE

• Business world• India Today• Capital Market• Business & Economy

NEWS-PAPER

• Economic Times• Times of India• The Hitavada