stock analysis online_ sensex & nifty index calculation

7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION

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STOCK ANALYSIS ONLINEAnalysis of Investments in General but special attention to Indian Stock Markets including BSE SENSEX & NSE NIFTY.

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SENSEX & NIFTY INDEX CALCULATION

Stock Market performance is quantified by calculating an index using the

benchmark scrips and we all know that SENSEX is associated with

Bombay Stock Exchange and NIFTY is associated with National Stock

Exchange, but what many do not know is how those indices are

calculated along with EPS and PE values.

SENSEX

SENSEX has been calculated since 1986 and initially it was calculated

based on the Total Market Capitalization methodology and the

methodology was changed in 2003 to Free Float Market Capitalization.

Hence, these days, the SENSEX is based on the Free Floating Market

cap of 30 SENSEX Stocks traded on the BSE relative to the base value

which is 100(1978-79) and it is calculated for every 15 seconds.

Free Float Market Capitalization is defined as the value of all the

shares available for public trading excluding the promoter equity, holdings

through FDI Route, Holdings by private corporate, and holdings by

Employee Welfare Funds. .

Why Free Flow Market Cap?

1. It depicts the market more rationally

2. It removes undue influence of government or promoter share holding,

there by giving the equal opportunity for companies to be in the SENSEX

3. Almost all the Indices world over are calculated by this methodology

4. It gives Fund managers more authentic information for benchmark

comparisons.

How the SENSEX 30 Stocks are selected?

1. Listing History

2. Trading Frequency

3. Rank based on the Market Cap (Should be Among top 100)

4. Market Capitalization weight

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5. Industry / sector they belong

6. Historical Record

How SENSEX is calculated?

The formula for calculating the SENSEX = (Sum of free flow market cap of

30 benchmark stocks)*Index Factor

Index Factor = 100/Market Cap Value in 1978-79.

Where, 100 is the Index value during 1978-79.

Example:

Assume SENSEX has only 2 stocks namely SBI and RELIANCE. Total

shares in SBI are 500 out of which 200 are held by Government and only

300 are available for public trading. RELIANCE has 1000 shares out of

which 500 are held by promoters and 500 are available for trading.

Assume price of SBI Stock is Rs.100 and Reliance is Rs.200. Then "free-

Floating Market Cap" of these 2 companies =

(300*100+500*200) = 30000+100000 = Rs. 130000

Assume Market Cap during the year 1978-79 was Rs.25000

Then SENSEX = 130000*100/25000 = 520.

The methodology in the example is exactly followed to calculate the

SENSEX, only difference being the inclusion of 30 stocks.

NIFTY

The National Stock Exchange (NSE) is associated with NIFTY and it is

also calculated by the same methodology but with two key differences.

1. Base year is 1995 and base value is 1000.

2. NIFTY is calculated based on 50 stocks.

Everything else remains the same in NIFTY Index calculation as well.

SENSEX EPS

We all know Earnings per Share (EPS) is calculated for all the companies

to show how much a company generates the net profit for every

outstanding share. Likewise EPS is calculated for SENSEX as well so

that we can have a better understanding about the market.

Lets see how it is calculated. All you need for this calculation is EPS of

all the 30 SENSEX stocks along with their Free Float Adjustment Factor.

Example: Take HDFC Bank for the example. Present EPS for HDFC

Bank is Rs. 44 and Free Float Adjustment Factor is 0.85. Free Float

Adjustment factor of 0.85 just means 85% of the total outstanding shares

are held by Non-Promoters and are available in the market for trade.

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Comments



Multiply the EPS with Adjustment Factor which is 44*.85 = 37.4. This

37.4 is the contribution of HDFC Bank towards SENSEX EPS. Likewise

we need to calculate for all 30 stocks and add it together to get the final

value of SENSEX EPS which should be somewhere around 900 these

days. We can calculate NIFTY EPS in the same manner.

SENSEX PE

PE Ratio is calculated for companies which show what the investors are

ready to pay for every rupee of earnings. If we calculate the same thing by

taking into account all the 30 SENSEX stocks, then we will end up with

SENSEX PE.

How to calculate?

Consider the same HDFC Bank. Multiply the Market Price of HDFC Bank

with number of shares outstanding which should be equal to Market

Capitalization.

Market Capitalization = Share Price * Total Shares

Then calculate the Net Profit by multiplying the EPS with Total Shares.

Do this for all the 30 SENSEX stocks.

SENSEX PE = Sum of Market Capitalization of 30 SENSEX Stocks

divided by Sum of Net Profit of all the 30 SENSEX Stocks.

At present the SENSEX PE is around 12 and it provides useful

information about SENSEX. Analysts predict the level of SENSEX using

this number only. Suppose, SENSEX PE is 12 and SENSEX EPS is 900,

then the Index = 10800. For example, if you believe, earnings of the

companies would grow at 10 percent this year, then apply the same

growth rate to both SENSEX PE and SENSEX EPS to predict the

SENSEX next year which would be 13*1000 = 13000.

Conclusion: SENSEX PE and SENSEX EPS give some useful

information about which way the market might move. But it is not

necessary that the information you get should hold true always. As we

know, Stock Market is a place, where no one can be right all the time.

Kumaran Seenivasan

Posted by Kumaran Seenivasan at 9:38 PM

Labels: SENSEX Calculation

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52 COMMENTS:

Shabu's, February 17, 2009 at 10:17 PM

Dear Mr Kumaran,

Its excellent... and simple projection of the formula with

examples about the most talked indices. Such posts will help

out the common investors in great way.... keep it up and

regards

Shabu

Dr.Krishna, February 18, 2009 at 2:38 AM

Kumaran, excellent article. I added a link to this article. Keep it

up. Good begining.

Nifty Stock Market

Nifty Intraday

Nifty Trading Tips

Nifty Index

Indian Stock Trading

NSE Stock Price



DBA-Oracle-Admin/StockNvestor, February 18, 2009 at 4:17 AM

Dear Sir,

Great work...thanks for spreading knowledge,the post is in

simple language and it can be understand easily....sir you are

doing a great work...keep the good work going....god bless you

with more knowledge...there is one saying the people who got

enough knowledge is said to be an knowledge GOD...sir you

are god of knowledge.

Kumaran, February 18, 2009 at 6:00 AM

Thank You all for your appreciative comments and I will try my

best to give you the best possible content you can have on the

topics I choose to write.

Eeswaran, February 18, 2009 at 8:39 AM

It's is really excellent...Post some of the share market basics -

to help the beginners...

BULLS, February 19, 2009 at 12:51 AM

Hello Mr Kumaran,

The most striking aspect of your posting is 'Simplicity'.

Simplicity blended with logical conclusions & explanations.

And, most of all, your ability to touch diverse topics of

discussion in every other new article.

-BULLS

madankumarrajan, February 22, 2009 at 10:03 AM

Kumaran,

I am a newbie to stock market. This post was really useful.

Thanks :-)

Anonymous, July 8, 2009 at 9:29 AM

Really indeed good article Mr.Kumaran.

It would be great if you could share some article about ONLINE

TRADING i.e., Intra trading and how to benefit from such

trading.

Micky, September 12, 2009 at 7:41 AM

Thanks Kumaran

Kannan, September 19, 2009 at 10:09 PM

Hi Kumaran,

Very good article. Would you suggest good resources where I

can get more information.



Thanks,

Kannan

Kannan, September 19, 2009 at 10:09 PM

Hi Kumaran,

Very good article. Would you suggest good resources where I

can get more information.

Thanks,

Kannan

Anonymous, November 13, 2009 at 3:50 AM

I found this site using [url=http://google.com]google.com[/url]

And i want to thank you for your work. You have done really

very good site. Great work, great site! Thank you!

Sorry for offtopic

sharetipsinfo, December 11, 2009 at 9:24 AM

Hi,

The market is currently enjoying a good rally which has seen

most stocks gain from competitive advantage and it would be

advisable for all stock market enthusiasts to seize this

opportunity and plan their investments in a safer yet conducive

stock market. With NIFTY hovering around 4800-4900 +, it is

expected to take hold of this currently rally and be realistically

be closest to 5000 more so than before in what should be its

new 52 week high.

Lot many untouched stocks are still there which are ready to

blast any moment.

Regards

SHARETIPSINFO TEAM

Pushkar, December 28, 2009 at 5:07 AM

Hello,

I have done the following analysis(all are paper trades):-

Case 1. SIP in nifty since 1/1/19999 and sold all yesterday

calculated the returns

Case 2. Entered the market at PE of 11 or below. Kept on

buying every month until the PE was under 15. Stopped buying

ones the PE is above 15. Exit all at PE 27. Re-entry only at

PE at 11 and then buy every month until PE is below 15and

so on.

Case3. Case 2 + I shorted the mkt at PE 27 and covered all at

PE 11, rest all is same as case 2.

Returns:-

Case1. 18% CAGR i.e. 18% per year cumulated annual

compounding for 11 years.

Rs 100 per month became Rs 37000 after 11 years. net profit

is Rs 25000(Rs 13200 is investment amount)

Case2. 30% CAGR. Rs 100 per month became 78000 after 11



years.

Case3. 38% CAGR Rs 100 per month became 122000 after 11

years.

Please note that in cases 2 and 3 when I am not able to enter

each month, I keep those Rs 100 in Fixed deposits, one my

entry level comes(either for short or for long, I liquidate my FDs

and enter the markets) so investment amount in all the 3

cases is exactly the same.

In these 11 years there were not more than 4-5 buys and 2

sells in case 2 and 3.

Case 3 outperformed case 2 and case 2 outperformed case 1.

My questions:-

I plan to implement this strategy for my investments. I want to

know how safe it is to go short at 27. Isnt it possible that nifty

PE might just move into some different range, maybe the next

time when the fall comes after say 5 years, maybe nifty PE

could be 32 or 33is that possible? Case 3 gets into a very

big risk if this happens.

Regards,

Pushkar

Anonymous, March 24, 2010 at 2:42 AM

REALLY YOU GUYS HAVE DONE VERY GOOD WORK....

arindam, April 8, 2010 at 12:52 AM

Dear Mr Kumaran

Hats off to you for this explanation.

Regards

Arindam Chatterjee

BIM

PRAVIN LATHKAR, April 15, 2010 at 8:55 AM

IT IS GOOD COMBINATION OF THEORY AND PRACTICAL IN

SIMPLE MANNER, ANY ONE CAN UNDERSTAND WITHOUT

ANY DIFFICULTY

stock tips, May 11, 2010 at 12:57 AM

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suresh, May 24, 2010 at 9:28 AM

dear sir

you have explained the basics of Nifty and SEENSEX in very

simple and easy manner. as a fresher to market, i am really

indebited to your explanation

great work and keep it up sir

from suresh

Anonymous, May 28, 2010 at 10:26 AM

SIR can you kindly tell me which net profit figures to consider

for SENSEX EPS CALCULATION

(consolidated/standalone/audited/unaudited/result of group as

a whole)

Please help me...

Anonymous, July 31, 2010 at 10:18 AM

i am in CA final and i havnt got such a simpler way of

calculation of indices.great job!!

KnowYourProfit, September 24, 2010 at 5:54 AM

This blog is quite nice and informative blog created by the

webmaster

As per our previous posting we had already told that the Indian

Stock Market is now in such a position that either side

breakout can be witnessed soon and Today Sensex has

Touched 19000 level Sensex

Team

KnowYourProfit

+91-9871142419

Raghunath J Pai, October 11, 2010 at 12:02 PM

Hi thank u for the article..but i would like to ask u one doubt..

what is the base value for co.s which came into existence after

1978-79..?? to calculate sensex...pls help..!

Anonymous, January 6, 2011 at 2:28 PM

Hi kumar,

The information provided by you would be worth taken by all

finance related graduates and post graduates, so i would like

to cheer and buck up you for further interest things regard to

market finance very much in future

Thank you,

Srikanth Gowda, karnataka

Anonymous, January 14, 2011 at 10:39 AM

If you are open to having a guest blog poster please reply and



let me know. I will provide you with unique content for your

blog, thanks.

Anonymous, February 17, 2011 at 11:49 AM

Hi,

Thnx for the info its v.useful and the way the it is explained its

v.nice....

Think over it once, February 24, 2011 at 6:02 AM

May I know what is Index factor in the calculation of SENSEX

Thank you,

Sneha.

Stock Tips, March 26, 2011 at 7:42 AM

It was a awe-inspiring post and it has a significant meaning

and thanks for sharing the information.Would love to read your

next post too......

Thanks

Regards

Stock Tips

stock tips, May 20, 2011 at 1:40 AM

Very good post, I was really searching for this topic, as I

wanted this topic to understand completely and it is also

very rare in internet, that is why it was very difficult to

understand.

Thank you for sharing this.

regards:

Stock Tips

Ritesh. P, May 23, 2011 at 2:31 PM

A very useful post. I like the way you've explained the concepts

using numbers. Keep it up, Kumaran. :)

Chan, May 26, 2011 at 11:32 AM

Hi Kumaran,

The most essential knowledge for a trader being explained in

simple terms.

Tons of Thanks.

Keep Feeding us

venki, June 17, 2011 at 7:47 AM

Excellant.......nice article....

--Venkip

Hyderabad

Suresha, July 11, 2011 at 7:06 PM

Helllo sir,

Excellent!!! Appreciate your hard work. its really helpful



Regards,

Suresha

RAVI BHANDARI, July 16, 2011 at 12:23 AM

It's very nice sensex calculation. But it would be better if you

had sown how the base market capitalisaiton is

calculated...instead of assuming base market

capitalisation.And I want to know how the price of stock

changes? And details about the stock selection method

Anonymous, September 14, 2011 at 2:22 AM

Explained very well.Could not find this in NSE and BSE as well

with such granularity. I think NSE and BSE websites should be

bit eloberate while explaining the calculation

shibashish sahu, February 1, 2012 at 12:56 PM

Its really easy to understand for the learner which can give an

overall idea about sensex and nifty...............

Anonymous, February 19, 2012 at 12:47 AM

thanks a lot

vishal, March 1, 2012 at 5:52 AM

Thanks so much for this! I haven't been this moved by a blog

for a long time! Youve got it, whatever that means in blogging.

Anyway, You are definitely someone that has something to

say that people need to hear. Keep up the good work. Keep on

inspiring the people!

stock tips,nifty tips,commodity tips

kavan, March 9, 2012 at 12:17 AM

Mr. Kumaran,

It really fantastic work and the way to explain entire calculation

and formation of benchmark is so good and on its very easy to

understand entire thing. so its help alot.

thank you so much

Unknown, May 6, 2012 at 9:04 AM

Dear kumaran sir

It is the best article i ever read about the sensex calculation.

Thank you very much for such a beautifull article. Kindly add

some more articles related to finance.

Thank you sir

Aswin, May 22, 2012 at 4:46 AM

Dear Sir,

That was an excellent explanation.. how can i get my other

doubts clarified from you ??



Paul, June 7, 2012 at 5:22 AM

thanks for this post. This post makes a great point about

focusing your efforts.

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trading Tips,Forex Pairs | commodity tips

Payal Gupta, August 12, 2012 at 12:19 PM

Excellent article Sir, it helped me a lot in understanding the

significance of SENSEX PE AND SENSEX EPS.

Adil Thaha S V, August 22, 2012 at 8:25 AM

Thanks...

Kiran Malladad, August 29, 2012 at 1:31 PM

Hello Sir

It was really worth of reading the information. thanks for sharing

with everyone

Regards

Kiran Malladad

Kiran Malladad, August 29, 2012 at 1:33 PM

Hello Sir

Thanks for the Valuable information it was worth of sharing ur

knowledge with everyone

Thanks

regards

Kiran Malladad

Anonymous, September 6, 2012 at 4:03 AM

It is really a good article for public.thanks

Dr.Sudhakaran, September 8, 2012 at 8:54 AM

Dear Mr.Kumaran,

The intricacies of sensex and nifty indices are explained in a

lucid manner.Congrats for the same.The tricks of the trading if

available in such simple form will be a boon.

Regards

Sudhakaran

Sridhar Gopalakrishnan, September 16, 2012 at 5:45 AM

Thanks Kumaran for explaining this in simple terms..

I have a question though on tha last part where you talked

about growth.

If the growth of companies is 10% , how is that the Sensex

moves to 13*1000 from 12*900?

Please explain this part as you get time..

Regards

Sri



Newer Post Older Post

harika, November 16, 2012 at 11:36 PM

thanks sir,The most essential knowledge for a trader being

explained in simple terms. Which helped me a lot.

satyapriya, January 10, 2013 at 5:04 AM

Dear Kumaran,

It is indeed a splendid work by you. i was wondering in internet

regarding how the stock indices are calculated and was

surprised to see an article giving very clear-cut and precise

idea. Very good work by you.

Keep it up

Regards

Satyapriya B S Panda

misheeta, March 13, 2014 at 5:11 AM

really worth reading for post...

click here for more

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