STOCK MARKET INDICES

INTRODUCTION:

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STOCK EXCHANGE

A stock exchange can be defined as a centralized

market for buying and selling stocks where the price
is determined through supply-demand mechanism.
According to the Securities Contracts(Regulation)Act ,
1956,which is the main law
governing stock
exchanges in India, stock exchange means any body
of individuals, whether incorporated or not,
constituted for the purpose of assisting, regulating, or
controlling the business of buying, selling or dealing
in securities.

In stock exchanges , continuous trading in securities

takes place and the trade occurs at different prices.
As a result even on a single day, prices of securities
may fluctuate.
On any trading day, four prices can be easily
identified,namely,opening price, closing price, the
highest price of the day and the lowest price of the
day. Ordinarily prices move in a cyclical fashion,
alternatively showing increasing and decreasing
tendencies.
The short term and the long term fluctuations in
prices of securities are indicators of the variations in
the economic variables.

STOCK MARKET INDEX

A stock market index is a method of measuring a
section of the stock market. Many indices are cited by
news or financial services firms and are used
as benchmarks,
to
measure
the
performance
of portfolios such as mutual funds.
Alternatively, an index may also be considered as an
instrument (after all it can be traded) which derives its
value from other instruments or indices. The index may
be weighted to reflect the market capitalization of its
components, or may be a simple index which merely
represents the net change in the prices of the
underlying instruments. Most publicly quoted stock
market indices are weighted.

STOCK MARKET INDICES

Stock market indices are useful in understanding the
level of prices and the trend of price movements of the
market.
A stock market index is created by selecting a group of
stocks that are capable of representing the whole
market or a specified sector or segment of the market.
The change in the prices of this basket of securities is
measured with reference to a base period.
There is usually a provision for giving proper weights to
different stocks on the basis of their importance in the
economy.
A stock market index act as the indicator of the
performance of the economy or a sector of the
economy.

STOCK MARKET INDICES:USEFULNESS

Stock market indices are the barometer of the stock market.
BSE SENSEX,NSE-50 etc are some of the market indices.
Their usefulness:
Indices help to recognize broad trends in the market.
The investor can use the indices to allocate the funds
rationally among the stocks.
Technical analysts use these indices to predict the future
market.
Indices function as a status report on the general
economy.

CRITERIA FOR SELECTING STOCKS TO

CALCULATE INDEX
Listing history: The company should have listing history on BSE
for at least one year
Track record: The company should have listing history
Market capitalization: Company should have one among 100
market capitalizations of BSE,
And each company should have more than0.5% of total market
capitalization of BSE INDEX
Frequency of trading: Company stocks
should be traded on each and every trading
day for the last one year
Industrial representation: Company
Should be a leader in the industry it
represents

Market Capitalisation
Market capitalization is the total worth of all outstanding (issued)
shares of a company. It represents the total worth of a company.
Market capitalization=
No of shares outstanding x market price of share
Free Float Market Capitalization
Free float concept is an index construction methodology which makes
use of free float shares in the market.
Free float market capitalization is the total worth of all shares of a
company which are available for trading in the open market. These
shares are called free float shares and are available for trading by

Example:
Company XYZ Ltd issues 10000 shares, out of which 2000 shares held by
government, 5000 shares by directors of the company and remaining 3000
shares are available in the open market for trading. Market price of share is
100 Rs.
Here;
Total Shares =
10000
Shares Held by Government =
2000
Shares Held by Directors =
5000
Shares available in the Open Market =
3000
Market price of share =
Rs 100
Here total market
=Rs 10,00,000 and
Free float market
=Rs 300,000

capitalization

of the

company is 10,000

Rs100

capitalization

of the

company is 3000

Rs100

Calculation of SENSEX and NIFTY

Sensex calculation is practiced since 1986. Initially it had been
calculated using total market capitalization method but the
methodology changed to free float market capitalization since
from 2003. Hence these days Sensex is calculated using free
float market capitalization of 30 major BSE listed companies
and by using base value 100 (1978-79). SENSEX is calculated
for every 15 seconds.
Formula for Sensex
SENSEX = (sum of free float market cap of 30 major
companies of BSE)X Index value in 1978-79 / Market
cap value in 1978-79.

Example:
Suppose BSE index (SENSEX) consist of only
two stocks such as X and Y
Company X has 10000 outstanding shares
out of which only 5000 are available for
trading in open market. Market price of
share is Rs.100.
Company Y has 5000 outstanding shares
out of which 2000 shares are held by
promoters and remaining 3000 are free float
shares
(open market
shares). Market
price of share is Rs.50
Here;
Sum of free float market cap of company X and company
Y is 500000+100000 = 600000
Assume market cap during 1978-79 is 500000
Now Apply formula;
600000*100/500000 = 120

Calculation of Market Capitalization

Stock
X
Y

Issued
Stocks
10000
5000

Calculation of
capitalization
Stock
X
Y

Market price
100
50

Free

Open Market
Stocks
5000
2000

Market Cap.
1000000
250000

Float

Market price
100
50

market

Market Cap.
500000
100000

SENSEX =(sumoffreefloatmarketcapof30
majorcompaniesofBSE) XIndexvaluein
1978-79 /Marketcapvaluein1978-79.

The same method is used to calculate NSE nifty but

includes two major changes.

Base year is 1995 and base value (index value)

is 1000

Nifty represents stocks of 50 major companies

of NSE.
Formula for NIFTY
NIFTY=(Sumoffreeflowmarketcapof50majorstocksof
NSE)X Indexvaluein1995/ marketcapvaluein1995.

BOMBAY STOCK EXCHANGE BSE

Bombay Stock Exchange is the oldest stock

exchange in Asia with a rich heritage of over 133
years of existence.
BSE is the first stock exchange in the country
which obtained permanent recognition (in 1956)
from the Government of India under the
Securities Contracts (Regulation) Act (SCRA)
1956.
Over the past 133 years, BSE has facilitated the
growth of the Indian corporate sector by
providing it with cost and time efficient access to
resources.

SENSEX (BSE30)
The BSE SENSEX, also called the BSE 30 or simply the SENSEX,
is a free-float market capitalization-weighted stock market index of 30 wellestablished
and financially sound companies listed on Bombay Stock Exchange.
The 30 component companies which are some of the largest and most actively traded
stocks,
are representative of various industrial sectors of the Indian economy. Published since
January 1,
1986, the SENSEX is regarded as the pulse of the domestic stock markets in India.
The base value of the SENSEX is taken as 100 on April 1, 1979, and its base year
as 1978-79.
On 25 July, 2001 BSE launched DOLLEX-30, a dollar-linked version of SENSEX.

Presently the following are the

constituent companies:

ACC Ltd. Cement and cement products

Ambuja Cements Ltd. Cement and Cement Products
Bajaj Auto Ltd. Automobiles - 2 and 3 Wheelers
Bharat Heavy Electricals Ltd. Electrical Equipment
Bharti Airtel Ltd. Telecommunication - Services
Cipla Ltd. Pharmaceuticals
DLF Ltd. Developers/Construction
Grasim Industries Ltd. Diversified
Housing Development Finance Corporation Ltd. Finance Housing
HDFC Bank Ltd. Banks

Hindalco Industries Ltd. Aluminium

Hindustan Unilever Ltd. FMCG
ICICI Bank Ltd. Banks
Infosys Technologies Ltd. Information Technology
ITC Ltd. FMCG
Larsen & Toubro Ltd. Engineering
Mahindra & Mahindra Ltd. Automobiles - 4 wheelers
Maruti Udyog Ltd. Automobiles - 4 wheelers
NTPC Ltd. Power
Oil & Natural Gas Corporation Ltd. Oil
Exploration/Production

Ranbaxy Laboratories Ltd. Pharmaceuticals

Reliance Communications Limited Telecom
Reliance Energy Ltd. Power
Reliance Industries Ltd. Refineries
Satyam Computer Services Ltd. Computers - Software
State Bank of India Banks
Tata Consultancy Services Ltd. Computers - Software
Tata Motors Ltd. Automobiles - 4 Wheelers
Wipro Ltd. Computers - Software

Hours of operation
Session Timing :
Pre-open Trading Session 09:00 - 09:15
Trading Session 09:15 - 15:30
Position Transfer Session 17:05 - 17:15
Closing Session 17:05 - 17:15
Option Exercise Session 17:07

BSE INDICES

BSE 100

BSE 200

BSE IPO

BSE Mid Cap and BSE Small Cap

BSE 100

BSE-100 was launched in January 03, 1989

and was previously known as the BSE
National index . The base year for this index
is 1983-84 with base index value fixed at 100
points. BSE-100 was launched on full market
capitalization method and shifted to FreeFloat methodology effective from April 5,
2004. The index has 100 companies with
varying weightages

BSE 200

BSE-200 Index was launched on May 27, 1994 on full market

capitalization method.
Dollex-200 was also launched on May 27, 1994 and is calculated based
on BSE-200 index. Dollex-200 is BSE-200 index represented in US
dollars.
The index calculation method shifted to free-float market capitalization
later on. The index base year is 1989-90 and base index value is 100.
As the name indicates, the index has 200 companies in the index which
represents wider market capitalization of the market.
The purpose of the index is to quantify price movements and monitor
sensitivity of the market.

BSE IPO

Companies may raise capital in the primary market

by way of an
Initial Public Offer
Rights Issue
Private Placement
An Initial Public Offer (IPO) is the selling of
securities to the public in the primary market. This
Initial Public Offering can be made through the fixed
price method, book building method or a
combination of both.

BSE MID CAP

Bombay Stock Exchange (BSE) introduced new index called

BSE MID-Cap index to track the performance of companies
with relatively mid-size market capitalization.
BSE-500 Index - represents more than 93% of market cap of
the listed companies in Bombay Stock Exchange (BSE).
Companies with large market capitalization bias the
movement of BSE-500 index.
This created a need to create a separate indicator to capture
the trend in companies with mid-size market capitalization.
Over the years, BSE Mid-Cap have proven to be a great use
to the investing community.

BSE SMALL CAP

NATIONAL STOCK EXCHANGE (NSE)

The National Stock Exchange of India (NSE)

situated in Mumbai - is the largest and most
advanced exchange with 1016 companies
listed and 726 trading members.
The NSE is owned by the group of leading
financial institutions such as Indian Bank or
Life Insurance Corporation of India.

National Stock Exchange

Indices
The major stock market indices available at the National
Stock Exchange(NSE) are:
S and P CNX Nifty , CNX Nifty Junior , S and P CNX 500 , CNX
Midcap 200
S and P CNX Nifty
It is an index calculated with a well diversified sample of fifty
stocks representing 23 sectors of the economy . The base
period selected for nifty is the close of prices on November
3,1995,which marks the completion of one year of operations
of NSEs capital market segment. The base value of the index
has been set at 1000.
Nifty is managed by India Index Services and
Products Ltd(IISL),which is a joint venture between NSE and
CRISIL. The index is known as S and P index because IISL
has consulting and licensing agreement with Standard and
Poors(S and P),who are world leaders in index services.

CNX Nifty Junior

Itiscomposedofthenextmostliquidfiftysecurities
so much so S and P CNX Nifty and CNX Nifty
Junior together account for the hundred most
liquid securities traded at NSE. The two indices
areconstitutedinsuchawayastobedisjointsets
thatisastockwillneverappearinboththeindices
atthesametime.

CNX Midcap 200

It is designed to capture the movement of the mid cap
segment or medium- sized capitalization companies .
The medium capitalization segment of the stock market
is being perceived increasingly as an attractive
investmentsegmentwithhighgrowthpotential.
The regional stock exchanges also bring out stock
indicescalculatedfromstockslistedandtradedatthose
exchanges.Manyprominentfinancialdailiesalsobring
outtheirownstockmarketindices.

Top 5 stock exchange of world

Exh\

NSDAQ
National Association of
Securities Dealers
Automated Quotations

New York Stock

Exchange