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BSE Sensex Index
Technical Analysis of Indian stock market BSE Sensex Index
1 Day Technical Analysis Chart of Indian stock market BSE Sensex Index
5 Day Technical Analysis Chart of Indian stock market BSE Sensex Index
1 Year Technical Analysis Chart of Indian stock market BSE Sensex Index
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).
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:
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.
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.
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.
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.
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.
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.
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.
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 additional issue of capital and
other corporate announcements like
bonus etc. do not destroy the 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 Index Cell of the Exchange does
the day-to-day maintenance of the
index within the broad index policy
framework set by the Index Committee.
The Index Cell takes special care to
ensure that SENSEX and all the other
BSE indices maintain their benchmark
properties by striking a delicate
balance between high turnover in Index
scrips and its representative
character. The Index Committee of the
Exchange has experts from different
field of finance related to the
capital markets. They include
Academicians, Fund-managers from
leading Mutual Funds, Finance -
Journalists, Market Participants,
Independent Governing Board members,
and Exchange administration.
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.
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.