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It is an index that represents the direction of the companies that are traded on
the Bombay Stock Exchange, BSE. The word Sensex comes from sensitive

The Sensex captures the increase or decrease in prices of stocks of companies

that it comprises. A number represents this movement. Currently, all the 30
stocks that make up the Sensex have reached a value of 14,355 points.

These companies represent the myriad sectors of the Indian economy. A few of
these companies and the sector they represent are: ACC (cement), Bajaj Auto ,
Tata Motors , Maruti (automobile), Infosys , Wipro , TCS (information
technology), ONGC , Reliance (oil & gas), ITC, HLL (fast moving consumer
goods) etc.

What is an index?

The Sensex is an "index". An index is basically an indicator. It gives you a

general idea about whether most of the stocks have gone up or most of the
stocks have gone down. The Sensex is an indicator of all the major companies
of the BSE. The Nifty is an indicator of all the major companies of the NSE.

S&P CNX Nifty

S&P CNX Nifty is a well diversified 50 stock index accounting for 23 sectors of
the economy. It is used for a variety of purposes such as benchmarking fund
portfolios, index based derivatives and index based funds
S&P CNX Nifty is owned and managed by India Index Services and Products
Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India's
first specialised company focused upon the index as a core product. IISL has a
Marketing and licensing agreement with Standard & Poor's (S&P), who are
world leaders in index services.

CNX Nifty Junior

The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty
Junior. It may be useful to think of the S&P CNX Nifty and the CNX Nifty
Junior as making up the 100 most liquid stocks in India.
As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for
liquidity, so they are the most liquid of the stocks excluded from the S&P CNX
Nifty. The maintenance of the S&P CNX Nifty and the CNX Nifty Junior are
synchronized so that the two indices will always be disjoint sets; i.e. a stock will
never appear in both indices at the same time. Hence it is always meaningful to
pool the S&P CNX Nifty and the CNX Nifty Junior into a composite 100 stock
index or portfolio.

Determinants of a Stock Index

Following parameters should be taken into picture before one constructs a stock

Liquidity :
Liquidity of stocks as measured by the “impact cost” criterion which
determines the cost faced when actually trading the index. For example if the
current market price of a stock is Rs 200 and a trader purchases it at Rs 202
(due to involved transaction costs) then the market impact cost is 1% and the
stock is considered highly liquid for lower impact cost.
Diversification :
Diversification, by putting stocks of various sectors that reflect the economy, is
used to cancel out stock noise which is essentially the individual stock
fluctuations and to reduce investor’s risks. An index must thus have a balanced
representation of all sectors.

Optimum size:
More stocks lead to greater diversification but the limiting factor is the size of
the index. Increasing number of stocks in an index from 10 to say 30 gives a
sharp reduction in risks but increasing the number beyond a point does very
little in risk reduction. Further it might lead to addition of illiquid stocks. For
example, the optimal size for BSE Sensex is 30.

Market Capitalization:
The index should include primarily the stocks of companies that have
significant market capitalization with respect to the index such that any major
change in the price of the stock is reflected in the index.
For example in BSE 30 Index, the scrip must have a minimum of 0.5% of the
market capitalization of the Index.

This refers to the total value of all the shares of a company at current market
price. For Example, if the total shares of a company are 1 lakh and the market
price of the share is Rs.10, the market capitalization of that company would be
Rs.10 lakh.

Averaging :
Every stock primarily moves for two reasons: The news about the company and
the news about the country. An ideal index is affected only by the latter, that is
the news of the economy and the effect of the former is knocked out by proper

The various methods of averaging employed are:

o Price Weighted:
The weights assigned are proportional to the stock prices.

o Market Capitalization Weighted:

The equity price is weighted by the market capitalization of the company.
Hence each constituent stock in the index affects the index value in proportion
to the market value of all outstanding shares.

(Current market capitalization)

Index = ---------------------------------------- x Base Value
(Base Market Capitalization)
CMS = Sum of (current market price * outstanding shares) of all securities in
the index
BMS = Sum of (market price * issue size) of all securities as on base date.

o Equal Weighted:
The weights are equal and assigned irrespective of both market
capitalization or price Index revision is done periodically taking into
consideration the factors mentioned above. The relevant index body makes
clear, researched and publicly documented rules for this purpose. These rules
are applied regularly, to obtain changes to the index set. However, it is ensured
that the value of the index does not change significantly after the revision of the
index set.

Share Holding pattern:

The shares of a company may be held by promoters, financial institutions

including foreign institutions, banks, other companies and the public.
Free Float:

The number of shares held by non-promoters or generally referred to as public

holdings. These include holding by financial institutions, banks and other


Weights are assigned to the companies included in an Index based either on

`Market Capitalization' or based on Free Float. Change in price is first
multiplied by the Weight assigned and then multiplied by the total number of
shares or free float shares to arrive at the impact on the index. For example, let
us take the example of two companies `A' and `B' with weight of 10 for `A' and
with weight of only 2 for `B' in the index. Let us say the change in price of both
shares is 10%. Assuming that both have same number of shares, the impact of
change in price of company `A' will be 5 times more than that of the impact of
change in price of company `B'. NSE TO SWITCH OVER TO FREE
FLOAT FOR NIFTY SENSEX is calculated using the Free Float method
while NIFTY is being calculated using Total Market Capitalization method. The
National Stock Exchange's NIFTY index will be computed using the free-float
market capitalization method from 26 June, 2009. Categories like government
holding in capacity of strategic investor, shares held by promotes through
ADR/GDRs, strategic stakes by corporate bodies, investment under Foreign
Direct Investment (FDI) category and cross-holdings among others would be
excluded from the free float factor. The top 5 losers in weight would be NTPC,
ONGC, POWERGRID, BHARTIAIRTEL & SAIL while the top 5 gainers in
weight would be ITC, INFOSYS, HDFC, ICICIBANK & L&T.

Among industries, Cigarettes and Banks would be the major gainers while
Power and Oil Exploration would be the major losers in weights.


SENSEX and NIFTY are the barometers of Indian Stock Market and are
generally used as a bench mark to evaluate the performance of a portfolio.
Mutual Funds in general and index based mutual funds maintain their portfolios
based on index weights. We can therefore expect buying in companies which
have gained weight while selling may occur in companies which have lost
weight. Mutual Funds and FIIs will have a re-look at their portfolio and carryout
exercise for rebalancing their portfolio. Individual Investors too need to re- look
at their portfolio and make necessary changes to maintain their portfolio in line
with NIFTY. Passive investors who have selected the mutual funds based on
their holdings and/or performance in relation to NIFTY will have to check the
revised portfolio of the funds and restructure their mutual fund portfolio. I have
been a strong advocate of structured portfolios in my seminars and clients
educating & empowering discussions. Structuring an investment portfolio is
about allocating funds to different assets such as shares, gold, risk free
investments such as bonds and realty etc. Structuring an equity portfolio means
allocating funds to buy shares of different industries and companies within each
industry so as to have a diversified portfolio. The single most powerful method
to verify whether your investments are successful is to check whether the
returns are in line with market returns. As I said in my recent awareness
program on “How to be your own Wealth Manager”, consistently trying to
beat the market over a longer period only entails taking greater risk which may
or may not yield greater returns proportionate to the additional risk taken. Asset
allocation based on economic trends and portfolio restructuring based on
principles of diversification, account for almost 95% of success. Market timing,
industry selection and stock selection etc. account for only a very small

Formula for Calculation of Index

All BSE indices (except BSE-PSU index) are calculated using following

Free-float market capitalization of index constituents/ Base Market


For calculation of BSE-PSU index, full market capitalization of index

constituents is considered instead of free-float market capitalization. Dollex-30,
Dollex-100 and Dollex-200 are dollar-linked versions of SENSEX, BSE-100
and BSE-200 index.

BSE IPO index & BSE TASIS Shariah 50 Index is calculated using following

Capped market capitalization of index constituents/ Base Market capitalization

* Base Index Value

where capped market capitalisation for scrips in BSE IPO Index and BSE
TASIS Shariah 50 Index is arrived by multiplying free-float adjusted market
capitalisation of individual scrip with its respective capping factor. Such
capping factor is assigned to the index constituent to ensure that no single scrip
based on its free-float market capitalisation exceeds weightage of 20% in case
BSE IPO Index and 8% in case of BSE TASIS Shariah 50 Index at the time of
rebalancing. In case, weightage of all the constituents in the index is below
20% & 8% respectively, each company would be assigned capping factor of 1.

Index Closure Algorithm

The closing index value on any trading day is computed taking the weighted
average of all the trades of index constituents in the last 30 minutes of trading
session. If an index constituent has not traded in the last 30 minutes, the last
traded price is taken for computation of the index closure. If an index
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.

Maintenance of BSE Indices

One of the important aspects of maintaining continuity with the past is to update
the base year average. The base year value adjustment ensures that replacement
of stocks in Index, additional issue of capital and other corporate
announcements like 'rights issue' etc. do not destroy the historical value of the
index. The beauty of maintenance lies in the fact that adjustments for corporate
actions in the Index should not per se affect the index values.

The Department of BSE Indices does the day-to-day maintenance of the index
within the broad index policy framework set by the BSE Index
Committee. Department of BSE Indices ensures that all BSE Indices maintain
their benchmark properties by striking a delicate balance between frequent
replacements in index and maintaining its historical continuity. The BSE Index
Committee comprises capital market expert, fund managers, market
participants, members of BSE Governing Board.

On - Line Computation of the Index

During trading hours, value of the indices is calculated and disseminated on real
time basis. This is done automatically on the basis of prices at which trades in
index constituents are executed.

Adjustment for Bonus, Rights and Newly Issued Capital

Index calculation needs to be adjusted for issue of bonus and rights issue. If no
adjustments were made, a discontinuity would arise between the current value
of the index and its previous value despite the non-occurrence of any economic
activity of substance. At the BSE Index Cell, the base value is adjusted, which
is used to alter market capitalization of the component stocks to arrive at the
index value.

The BSE Indices Department keeps a close watch on the events that might
affect the index on a regular basis and carries out daily maintenance of all BSE

• Adjustments for Rights Issues

When a company, included in the compilation of the index, issues right
shares, the free-float market capitalization 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 capitalization.

• Adjustments for Bonus Issue

When a company, included in the compilation of the index, issues bonus
shares, the market capitalization of that company does not undergo any
change. Therefore, there is no change in the Base Market capitalization;
only the 'number of shares' in the formula is updated.

• OtherIssues:
Base Market capitalization 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 capitalization Adjustment

The formula for adjusting the Base Market capitalization is as follows:

New Market
New Base Market Old Base Market
capitalization = capitalization x ----------------------------
Old Market

To illustrate, suppose a company issues additional shares, which

increases the market capitalization of the shares of that company by say,
Rs.100 crore. The existing Base Market capitalization (Old Base Market
capitalization), say, is Rs.2450 crore and the aggregate market
capitalization of all the shares included in the index before this issue is
made is, say Rs.4781 crore. The "New Base Market capitalization" will
then be:

2450 x
---------------------- = crores

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


Acc, Bharti Airtel, Bhel, Dlf, Grasim, Hdfc, Hdfc Bank, Hindalco, Hul, Icici
Bank, Infosys, Itc, Jaiprakash Associates, L&T, Mahindra & Mahindra, Maruti
Suzuki, Ongc, Ntpc, Ranabaxy Lab, Relience, Relience Comm, Relience
Infrastructure, Satyam, Sbi, Sterlite Industry, Tata Motors, Tata Power, Tata
Steel. Tcs, Wipro.


Reliance Industries Ltd., Oil And Natural Gas Corporation Ltd., Bharti Airtel
Limited, Ntpc Ltd, Reliance Communications Ltd., Icici Bank Ltd., Infosys
Technologies Ltd., Tata Consultancy Services Ltd,Bhel, State Bank Of India,
Steel Authority Of India, Larsen & Toubro Ltd., Hero Honda Motors Ltd, Zee
Entertainment Ltd, Indian Petrochemicals Corporation Ltd., Cipla Ltd, Bharat
Petroleum Corporation Ltd., Videsh Sanchar Nigam Ltd, Dr. Reddy's
Laboratories, Mahanagar Telephone Nigam Ltd, Glaxosmithkline Pharma Ltd.,
Abb Ltd. ,Power Grid Corporation Of India, Reliance Energy Ltd,Siemens
Ltd,Acc Limited,Ambuja Cements Ltd,Hcl Technologies Ltd,Hindalco
Industries Ltd,National Aluminium Co Ltd,Sun Pharmaceuticals Ind.,Mahindra
& Mahindra Ltd,Tata Power Co Ltd,Punjab National Bank,Ranbaxy Labs
Ltd,Itc Ltd,Reliance Petroleum Ltd.,Hdfc Ltd,Wipro Ltd, Sterlite
Industriesltd.,Hdfc Bank Ltd,Tata Steel Limited,Hindustan Unilever Ltd.,Suzlon
Energy Limited,Gail (India) Ltd,Grasim Industries Ltd,Satyam Computer
Services,Tata Motors Limited,Maruti Udyog Limited

List of companies in junior nifty:

Sterlite Industries , Siemens ,Reliance Capital, Container Corporation ,
Jaiprakash Associates , Bharat Electronics Canara Bank ,Bharat Forge ,Axis
Bank ,Kotak Mahindra Bank ,I-Flex Solutions Bank of Baroda ,Ashok Leyland
, Asian Paints ,Industrial Development Bank of India ,Bank of India Union
Bank of India ,Great Eastern Shipping ,Indian Overseas Bank ,Patni Computer
Systems Nicholas Piramal ,Biocon ,Cadila Healthcare Wockhardt ,Corporation
Bank Lupin ,Cummins ,Aventis Pharma ,Syndicate Bank ,Andhra Bank,
Nirma ,Aurobinda Pharma ,TVS Motor Company Tata Teleservices
(Maharashtra) ,Raymond ,Chennai Petroleum Corporation ,Mphasis BFL ,Pfizer
Moser Baer ,Kochi Refineries, Vijaya Bank ,LIC Housing Finance ,Punjab
Tractors ,Bongaigaon Refinery and Petrochemicals ,ING Vysya Bank IBP
,Ingersoll Rand ,Apollo Tyres ,Polaris Software Lab