SENSEX

Agenda

Stock Stock Market Stock Market Basics BSE Free Float Method PE Ratio

Stock The stock (also capital stock) of a corporation

constitutes the equity stake of its owners. Stock is a share in the ownership of a company A shareholder or stockholder is an individual

or institution (including a corporation) that legally owns a share of stock in a public or private corporation.

A holder of stock (a shareholder) has a claim to a part of the corporation's assets and earnings.

Stock Basics

The Bulls The Bears The Other Animals on the

Farm - Chickens and Pigs

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.

BSE

Bombay Stock Exchange 11th largest stock exchange in the world

by market capitalisation(as on 31st December, 2012)

Established in 1875 Oldest Stock Exchange in India

Ashish Chauhan (MD and CEO) ISO 9001:2000 certified 2nd to receive Information Security

Management System Standard Index

BSE SENSEXBSE Small CapBSE Mid-CapBSE 500

Sensex

S&P Bombay Stock Exchange Sensitive Index

Also-called the BSE 30 Sens was coined by Deepak Mohoni, a

stock market analyst Calculated using free float capitalization

method The index has increased by over ten

times from June 1990 to the present

Constituents of SensexHousing Development Finance Corporation

Hindalco Industries GAIL

Cipla Tata Steel ICICI Bank

Bharat Heavy Electricals Larsen & Toubro Jindal Steel & Power

State Bank Of India Mahindra & Mahindra Bharti Airtel

HDFC Bank Tata Motors Maruti Suzuki

Hero Motocorp Hindustan Unilever Tata Consultancy Services

Infosys ITC NTPC

Oil and Natural Gas Corporation

Sterlite Industries DLF

Reliance Industries Wipro Bajaj Auto

Tata Power Sun Pharmaceutical Coal India

Steps In Calculating Sensex1. Market capitalization of each of the 30

companies comprising the index is first determined

2. Market capitalization is then multiplied to the free-float factor to derive the free-float market capitalization.

3. The free-float market capitalization of the Index constituents is then divided by a number known as the Index Divisor

Market Capitalization

Market capitalization is the aggregate valuation of the company based on its current share price and the total number of outstanding stocks.

Market Capitalization A company has 20 million outstanding shares

and the current market price of each share is Rs100. Market capitalization of this company will be 200,00,000 x 100=Rs 200 crore.

Stocks of companies are of three types. The stocks with a market cap of Rs 10,000 crore

or more are large cap stocks. Market cap between Rs 2 crore and 10 crore are

mid cap stocks Less than Rs 2 crore; small cap stocks.

Free Float Method A method by which the market capitalization

of an index's underlying companies is calculated.

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 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.

Free-float Bands

% Free-Float

Free-Float Factor

% Free-Float Free-Float Factor

>0 – 5% 0.05 >50 – 55% 0.55

>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

Example

If a company has a float of 10 million shares and outstanding shares of 12 million, the percent of float to outstanding is 83%.

A company with an 83% free float falls in the 80-85% free-float factor

Or 0.85, which is then multiplied by its market cap (e.g., $120 million (12 million shares x .$10/share) x 0.85 = $102 million free-float capitalization).

Advantages of Free Float

It depicts the market more rationally. It removes undue influence of

government or promoters share holding, there by giving them equal opportunity for companies to be in the SENSEX.

Almost all the indices over the world are calculated by this methodology.

It gives fund managers more authentic information

Sensex Calculation

First: Find out the “free-float market cap” of all the 30 companies that make up the Sensex!

Second: Add all the “free-float market cap’s” of all the 30 companies!

Third: Make all this relative to the Sensex base.

The value you get is the Sensex value!

Example

Suppose, for a “free-float market cap” of Rs.100,000 Cr... the Sensex value is 4000

Then, for a “free-float market cap” of Rs.150,000 Cr.

The Sensex value will be..

Sensex value will be 6000

P/E Ratio

P/E Ratio is a valuation ratio of a company's current share price compared to its per-share earnings.

Market Value per ShareEarnings per Share (EPS)

For example, If a company is currently trading at $43

a share and earnings over the last 12 months were $1.95 per share,

The P/E Ratio for the stock would be 22.05 ($43/$1.95).

High P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.

PE RATIO OF SENSEX

PE is a ratio of the market price and EPS for a company

For SensexPE = market price * number of shares

outstanding / EPS* number of shares outstanding

market price * number of shares outstanding=market capitalization

EPS * number of shares outstanding = net profit

So, PE=market capitalisation/net profit

Calculation of PE of Sensex First calculate the market capitalisation

of all 30 stocks Add them Then you calculate the net profits of

each of the 30 stocks Sum them up The ratio of total market cap to total net

profit is the Sensex PE

Example

Total market capitalisation = Sum Of individual market capitalisation=

Rs 16,25,367 crore Net Profit= Sum of Individual Net Profit

= Rs 1,17,982 crore Hence, Sensex

PE= 1625367/117982=13.78

PE of Sensex(Last 12 months)

Month P / EMar-13 17.19Feb-13 17.43Jan-13 17.88Dec-12 17.43Nov-12 16.90Oct-12 17.31Sep-12 16.68Aug-12 16.68Jul-12 16.71Jun-12 16.37May-12 16.49Apr-12 17.63

Criteria for selecting the 30 stocks is as follows Eligible Companies Listing History Market Capitalization Trading frequency Industry/Sector Representation Revenue

Process of Selecting 30 Stocks Ranked The top 75 are identified. All stocks identified are then combined

and sorted Stocks with a cumulative value traded

greater than 98% are excluded. Remaining stocks are then sorted by

float market capitalization. Stocks with a weight of less than 0.5%

are excluded.

Sectorwise Market Capitalisation

25.46

17.9914.5513.92

9.63

5.76

4.51

3.54

2.37 2.26

Index Market Capitalization

Finance

Information Tech-nology

FMCG

Oil & Gas

Transport Equipments

Health Care

Capital Goods

Metal,Metal Products & Mining

Power

Telecom

World’s Biggest Stock Exchange

1. New York Stock Exchange Market cap: $13.4 trillion

2. Nasdaq Market cap: $3.9 trillion

3. Tokyo Stock Exchange Market cap: $3.8 trillion

4. London Stock Exchange Market cap: $3.6 trillion

5. Euronext Market cap: $2.9 trillion

6. Shanghai Stock Exchange Market cap: $2.7 trillion

7. Hong Kong Stock Exchange Market cap: $2.7 trillion

8. Toronto Stock Exchange○ Market cap: $2.2 trillion

9. Bombay Stock Exchange Market cap: $1.6 trillion

10. National Stock Exchange Market cap: $1.6 trillion

As per forbes.com