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Old 03-20-2006   #1
maurya05
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Default how the calculation of sensex done

hello friends

i m doing MBA. i m confused that how sensex number goes up or down like we hear on tv that sensex has touched 10,000 points so i want to know that how we calculalte these points. i know that there are 30 stocks on which the sensex points goes up and down


please try to explain by giving example
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Old 03-22-2006   #2
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hi

It is a very simple exercise where every stock has a certain weightage in the the index which consit of 30 key stocks updated from time to time by BSE.

Sensex in nothing but the average weighted movemnt of these stocks. Say e.g tata steel has 10% weighatge in the index and overall growth in tata steel is 5% in particular day , so tata stell contribution will be 10*1.05, and so on so forth all calculation will be done and final average increase or decrease will be done.
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Old 03-25-2006   #3
maurya05
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hi all
i ma unable to explain what u told so please elaborate it.

eg,infosys;289
reliance industries;777
icicicbank;591
itc;178
hdfc;1315,
suppose the closing price on particula day on stock is this and there onlothese stock then how will u tell sensex that day
calacualte it and then tell me.i m still confused
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Old 03-31-2006   #4
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Default sensex calculation made easy..........

Hi,

Its just easy calculation.....

Todays Market Cap/ Yeterdays Market Cap = Something and this something* yesterdays sensex, u will get todays sensex.

The reply which was sent by the guy is also correct, its nothing:

Tata - 57685748 (Market Cap)
Reliance - Market CAP
sbi - market cap

and so on just u will be having market caps of 50 companies and then total of the market caps of 50 companies. When u divide the company market cap by total cap then u will be getting, the individual weightage of the company in the sensex.
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Old 09-18-2006   #5
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Default Contact me through mail

Hi Maurya,

Where r u now? Hope u have still lot of doubts (Kidding !)

Waiting 4 ur reply

Amarnath.S
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Old 10-04-2006   #6
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Smile question regarding sensex

hello

i m doing MfcA. i m confused that how sensex number goes up or down like we hear on tv that sensex has touched 10,000 points so i want to know that how we calculalte these points. i know that there are 30 stocks on which the sensex points goes up and down
plz send me mail

please try to explain by giving example

Last edited by gudiya; 10-04-2006 at 11:44 PM.
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Old 10-04-2006   #7
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Smile how to calculate bse sensex?

[quote=gudiya]hello

i m doing MfcA. i m confused that how sensex number goes up or down like we hear on tv that sensex has touched 10,000 points so i want to know that how we calculalte these points. i know that there are 30 stocks on which the sensex points goes up and down
plz send me mail

please try to explain by giving example
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Old 10-08-2006   #8
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Hi Gudiya

Just read the messages which have been posted b4 ur msg and you will know. What is your confusion can you pinpoint??
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Old 10-11-2006   #9
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[quote=snigdha1]Hi Gudiya
plzzzzz tell me more abt sensex
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Old 10-11-2006   #10
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Default all about Sensex

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE(Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).
The BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of over 4000 stocks with the base April 1979 = 100. 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.
At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its composition to make sure it reflects current market conditions.
The abbreviated form "Sensex" was coined by Deepak Mohoni around 1990 while writing market analysis columns for some of the business newspapers and magazines. It gained popularity over the next year or two.
The stock market has grown by over ten times from June 1990 to today. Using information from April 1979 onwards, the long-run rate of return on the BSE Sensex can be estimated to be 0.52% per week (continuously compounded) with a standard deviation of 3.67%. This translates to 27% per annum, which translates to roughly 18% per annum after compensating for inflation.

Housing related
1. Associated Cement Companies Ltd
2. Gujarat Ambuja Cements Ltd
Transport Equipments
3. Bajaj Auto Ltd
4. Hero Honda Motors Ltd
5. Maruti Udyog Ltd
6. Tata Motors Ltd.
Capital Goods

7. Bharat Heavy Electricals Ltd
8. Larsen & Toubro Limited
Telecom
9. Bharti Airtel Ltd
10. Reliance Communications Limited
Healthcare
11. Cipla Ltd
12. Dr Reddy's Laboratories Ltd
13. Ranbaxy Laboratories Ltd
Diversified

14. Grasim Industries Ltd
Finance
15. HDFC
16. HDFC Bank Ltd
17. ICICI Bank Ltd
18. State Bank of India
Metal, Metal Products & Mining

19. Hindalco Industries Ltd
20. Tata Steel Ltd
FMCG

21. Hindustan Lever Ltd
22. ITC Ltd
Information Technology

23. Infosys Technologies Ltd
24. Satyam Computer Services Ltd
25. Tata Consultancy Services Limited
26. Wipro Ltd
Power

27. NTPC Ltd
28. Reliance Energy Ltd
Oil & Gas
29. ONGC Ltd
30. Reliance Industries Ltd
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Old 10-31-2006   #11
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Default All About Sensex


Hi All hope this answers your question. This is a Good Article so go througt it Once & enjoy



Q.1 What is SENSEX?
The SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-Weighted" index of 30 stocks representing a sample of large, well-established and financially sound companies. It is the oldest index in India and has acquired a unique place in the collective consciousness of investors. The index is widely used to measure the performance of the Indian stock markets. SENSEX is considered to be the pulse of the Indian stock markets as it represents the underlying universe of listed stocks at The Stock Exchange, Mumbai. Further, as the oldest index of the Indian Stock market, it provides time series data over a fairly long period of time (since 1978-79).


Q.2 What are the objectives of SENSEX?

The SENSEX is the benchmark index of the Indian Capital Markets with wide acceptance among individual investors, institutional investors, foreign investors and fund managers. The objectives of the index are:

To measure market movements
Given its long history and its wide acceptance, no other index matches the SENSEX in reflecting market movements and sentiments. SENSEX is widely used to describe the mood in the Indian Stock markets.

Benchmark for funds performance
The inclusion of blue chip companies and the wide and balanced industry representation in the SENSEX makes it the ideal benchmark for fund managers to compare the performance of their funds.

For index based derivative products
Institutional investors, money managers and small investors all refer to the SENSEX for their specific purposes The SENSEX is in effect the proxy for the Indian stock markets. The country's first derivative product i.e. Index-Futures was launched on SENSEX.


Q.3 What are the criteria for selection and review of scrips for the SENSEX?
A. Quantitative Criteria:

1. Market Capitalization:
The scrip should figure in the top 100 companies listed by market capitalization. Also market capitalization of each scrip should be more than 0.5 % of the total market capitalization of the Index i.e. the minimum weight should be 0.5 %. Since the SENSEX is a market capitalization weighted index, this is one of the primary criteria for scrip selection. (Market Capitalization would be averaged for last six months)

2. Liquidity:
(i) Trading Frequency: The scrip should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like scrip suspension etc. (ii) Number of Trades: Number of Trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year. (iii) Value of Shares Traded: Value of Shares Traded: The scrip should be among the top 150 companies listed by average value of shares traded per day for the last one year.

3. Continuity:
Whenever the composition of the index is changed, the continuity of historical series of index values is re-established by correlating the value of the revised index to the old index (index before revision). The back calculation over the last one-year period is carried out and correlation of the revised index to the old index should not be less than 0.98. This ensures that the historical continuity of the index is maintained.

4. Industry Representation:
Scrip selection would take into account a balanced representation of the listed companies in the universe of BSE. The index companies should be leaders in their industry group.

5. Listed History:
The scrip should have a listing history of at least one year on BSE.

B. Qualitative Criteria:

Track Record:
In the opinion of the Index Committee, the company should have an acceptable track record.


Q.4 What is the beta of SENSEX scrips?
Beta measures the sensitivity of a scrip movement relative to movement in the benchmark index i.e. SENSEX. A Beta of one means that for every change of 1% in index, the scrip moves by 1%. Statistically Beta is defined as: Covariance (SENSEX, Stock )/ Variance(SENSEX)
Note: Covariance and variance are calculated from the Daily Returns data of the SENSEX and SENSEX scrips.


Q.5 How is SENSEX calculated?


SENSEX is calculated using a "Market Capitalization-Weighted" methodology. As per this methodology, the level of index at any point of time reflects the total market value of 30 component 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 the company). An index of a set of a combined variables (such as price and number of shares) is commonly referred as a 'Composite Index' by statisticians. A single indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over time. It is much easier to graph a chart based on indexed values than one based on actual values.

The base period of SENSEX is 1978-79. The actual total market value of the stocks in the Index during the base period has been set equal to an indexed value of 100. This is often indicated by the notation 1978-79=100. The formula used to calculate the Index is fairly straightforward. However, the calculation of the adjustments to the Index (commonly called Index maintenance) is more complex.

The calculation of SENSEX involves dividing the total 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 all Index maintenance adjustments. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds and disseminated in real time.


Q.6 How is the closing Index calculated?

The closing SENSEX is computed taking the weighted average of all the trades on SENSEX constituents in the last 15 minutes of trading session. If a SENSEX constituent has not traded in the last 15 minutes, the last traded price is taken for computation of the Index closure. If a SENSEX constituent has not traded at all in a day, 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 index value.


Q.7 How are adjustments for Bonus, Rights and newly issued Capital carried out in SENSEX?
The arithmetic calculation involved in calculating SENSEX is simple, but problem arises when one of the component stocks pays a bonus or issues rights shares. If no adjustments were made, a discontinuity would arise between the current value of the index and its previous value. The Index Cell of the Exchange periodically adjusts the base value to take care of such corporate announcements.
Adjustments for Rights Issues:
When a company, included in the compilation of the index, issues right shares, the market capitalisation 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 Capitalisation (see ' Base Market Capitalisation Adjustment' below).
Adjustments for Bonus Issue:
When a company, included in the compilation of the index, issues bonus shares, the market capitalisation of that company does not undergo any change. Therefore, there is no change in the Base Market Capitalisation, only the 'number of shares' in the formula is updated.
Other Issues: Base Market Capitalisation Adjustment is required when new shares are issued by way of conversion of debentures, mergers, spin-offs etc. or when equity is reduced by way of buy-back of shares, corporate restructuring etc.
Base Market Capitalisation Adjustment: The formula for adjusting the Base Market Capitalisation is as follows:

New Base Market Capitalisation = Old Base Market Capitalisation X (New Market Capitalisation/Old Market Capitalisation)

To illustrate, suppose a company issues right shares which increases the market capitalisation of the shares of that company by say, Rs.100 crores. The existing Base Market Capitalisation (Old Base Market Capitalisation), say, is Rs.2450 crores and the aggregate market capitalisation of all the shares included in the index before the right issue is made is, say Rs.4781 crores. The "New Base Market Capitalisation " will then be: Rs.2501.24 crores = 2450 X (4781+100)/4781

This figure of 2501.24 will be used as the Base Market Capitalisation for calculating the index number from then onwards till the next base change becomes necessary.


Q.8 With what frequency is SENSEX calculation done?
During market hours, prices of the index scrips, at which trades are executed, are automatically used by the trading computer to calculate the SENSEX every 15 seconds and continuously updated on all trading workstations connected to the BSE trading computer in real time.
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Old 12-05-2006   #12
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Question Hello All

I came across this forum when I was doing some research on how the Sensex index is calculated. Needless to say, I have learned a lot from this thread.

I would, however, to see a clarification of how the base = 100 was arrived at. I presume 100 was taken as the market capitalization of the 30 stock on the day Sensex was conceived. Is this correct? Welcome your clarificaton.

Finally, where can I obtain the historical price and market cap data for the first day when Sensex was conceived, yielding the value of 100, exactly? Appreciate your reply. Thanks.

Last edited by VL1511; 12-05-2006 at 11:39 PM.
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Old 12-06-2006   #13
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hi

see this given in previous post

"The base period of SENSEX is 1978-79. The actual total market value of the stocks in the Index during the base period has been set equal to an indexed value of 100. This is often indicated by the notation 1978-79=100. The formula used to calculate the Index is fairly straightforward. However, the calculation of the adjustments to the Index (commonly called Index maintenance) is more complex. "

Check this also

http://www.bseindia.com/about/abindices/bse30.asp
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Old 12-06-2006   #14
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Default More on sensex

Thanks for joining in, snighda1, and the link you have provided. I understand that Sensex started with market capitalization for base period 1978-79 = 100. This means, on the first day when the Sensex index was conceived, the sum of the market capitalization values of the 30 components was computed and this was set as being equal to 100. I am looking for the historical market cap values of the 30 individual components on that first day, which I believe was April 1, 1979.

Of course, as we know, the Sensex index now stands at 13,937.65. This is the closing value on Dec 5, 2006 (at 17:30). The market capitalization values of the 30 components, for this date, can be readily obtained from finance indiamart com / bse / bse30 html

I calculated this sum and find that the total market cap was equal to Rs. 1,782,944.12 crores on Dec 5, 2006. The Sensex (BSE-30) is, however, just equal to 13,937.65 and is much lower than the total market cap of the 30 components. The reason for this lower value is the index divisor, as explained in various sources dealing with the BSE-30.

Based on my understanding, I can always take the market cap value on Dec 5, 2006 and set it as 100 and then follow how the market cap changes for, say, the next week and arrive at a new value of 110 (10% increase in market cap), or 120 (20% increase) and so on for the weeks ahead. However, since I must follow what everyone is doing, I have to try to rationalize how the Dec 5, 2006 market cap of Rs. 1,782,944.12 crores relates to the Sensex index of 13,937.65.

Would I be correct in saying that the index divisor on Dec 5,2006 is simply 1782944.12 divided by 13937.65 which equals 127.9229?

Please note that I am not interested, at this point, is how or why the index divisor changes due to the changes in the market cap which can occur for various reasons, besides just the change in the price per share. I understand that. However, let us assume that for the near future at least (say from Dec 5 to Dec 12, 2006), the change in market cap is entirely due to changes in the price per share. In that event, the divisor has remained constant and the change in the market capitalization would be in exact proportion to the change in the Sensex index.

For example, if the market cap on Dec 12, 2006 increases to 1802944.12, an increase of exactly Rs. 20,000 crores in the total market cap of the 30 components, then, according to my understanding of these computations, the Sensex index would have increased to 14093.99. The index divisor on Dec 12, 2006 equals 127.9229, the same as on Dec 5, 2006.

1802944.12/14093.99 = 127.9229 = 1782944.12/13937.65

I look forward to clarification by the experts here in this forum who may be much familiar with the Sensex index calculations than I am. I am trying here to arrive at a simple method/explanation for how changes in the Sensex can be correlated to changes in the value of a portfolio of a small number of the BSE-30 stocks. Your thoughts would be most welcome.

Last edited by VL1511; 12-10-2006 at 07:00 AM. Reason: typo
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Old 12-06-2006   #15
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Hi

Was going through all these posts. I was just wondering if VL511 ( i just wonder y such a complex name) has taken into account change in various companies as diff companies are there in place of original 30.
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