Brief ppt on Sensex

2. Agenda
 Stock
 Stock Market
 Stock Market Basics
 BSE
 Free Float Method
 PE Ratio

3. 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.

4. Stock Basics
 The Bulls
 The Bears
 The Other Animals on the
Farm - Chickens and Pigs

5. 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.

6. 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

7.  Ashish Chauhan (MD and CEO)
 ISO 9001:2000 certified
 2nd to receive Information Security
Management System Standard
 Index
 BSE SENSEX
 BSE Small Cap
 BSE Mid-Cap
 BSE 500

8. 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

9. Constituents of Sensex
Housing 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

10. Steps In Calculating Sensex
1. 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

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

12. 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.

13. Free Float Method
 A method by which the market capitalization
of an index's underlying companies is
calculated.

14.  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.

15. 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

16. 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).

17. 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

18. 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!

19. 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..

20.  Sensex value will be 6000

22. 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 Share
Earnings per Share (EPS)

23.  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).

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

25. PE RATIO OF SENSEX
 PE is a ratio of the market price and
EPS for a company
 For Sensex
 PE = market price * number of shares
outstanding / EPS* number of shares
outstanding

26.  market price * number of shares
outstanding=market capitalization
 EPS * number of shares outstanding =
net profit
 So, PE=market capitalisation/net profit

27. 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

28. 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

29. PE of Sensex(Last 12
months)
Month P / E
Mar-13 17.19
Feb-13 17.43
Jan-13 17.88
Dec-12 17.43
Nov-12 16.90
Oct-12 17.31
Sep-12 16.68
Aug-12 16.68
Jul-12 16.71
Jun-12 16.37
May-12 16.49
Apr-12 17.63

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

31. 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.

32. Sectorwise Market
Capitalisation
25.46
17.99
14.55
13.92
9.63
5.76
4.51 3.54 2.37
2.26
Index Market Capitalization
Finance
Information
Technology
FMCG
Oil & Gas
Transport
Equipments
Health Care
Capital Goods
Metal,Metal Products
& Mining
Power
Telecom

33. 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