History Of SENSEX

History Of SENSEX

For the premier Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called 'The Stock Exchange, Mumbai' by paying a princely amount of Re.1/-.

Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.

SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.

The Index was initially calculated based on the 'Full Market Capitalization' methodology but was shifted to the free-float methodology with effect from September 1, 2003. The 'Free-float Market Capitalization' methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.

Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over the years become one of the most prominent brands in the country.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The SENSEX captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through SENSEX.

Calculation Methodology

SENSEX is calculated using the 'Free-float Market Capitalization' methodology. As per this methodology, the level of index at any point of time reflects the Free-float 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. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the Free-float 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 adjustments arising out of corporate actions, replacement of scrips etc. 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.

Scrip selection criteria

The general guidelines for selection of constituents in SENSEX are as follows:
Listed History:The scrip should have a listing history of at least 3 months at BSE. Exception may be considered if full market capitalisation of a newly listed company ranks among top 10 in the list of BSE universe. In case, a company is listed on account of merger/ demerger/ amalgamation, minimum listing history would not be required.
Trading Frequency:The scrip should have been traded on each and every trading day in the last three months. Exceptions can be made for extreme reasons like scrip suspension etc.
Final Rank:The scrip should figure in the top 100 companies listed by final rank. The final rank is arrived at by assigning 75% weightage to the rank on the basis of three-month average full market capitalisation and 25% weightage to the liquidity rank based on three-month average daily turnover & three-month average impact cost.
Market Capitalization Weightage:The weightage of each scrip in SENSEX based on three-month average free-float market capitalisation should be at least 0.5% of the Index.
Industry Representation:Scrip selection would generally take into account a balanced representation of the listed companies in the universe of BSE.

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

Definition of Free-float

Share holdings held by investors that would not, in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float. In specific, the following categories of holding are generally excluded from the definition of Free-float:

Ø Holdings by founders/directors/ acquirers which has control element

Ø Holdings by persons/ bodies with 'Controlling Interest'

Ø Government holding as promoter/acquirer

Ø Holdings through the FDI Route

Ø Strategic stakes by private corporate bodies/ individuals

Ø Equity held by associate/group companies (cross-holdings)

Ø Equity held by Employee Welfare Trusts

Ø Locked-in shares and shares which would not be sold in the open market in normal course.

The remaining shareholders would fall under the Free-float category.

Understanding Free-float Methodology
Free-float Methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in Index. Free-float market capitalization is defined as that proportion of total shares issued by the company that are readily available for trading in the market. It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the market.

In India, BSE pioneered the concept of Free-float by launching BSE TECk in July 2001 and BANKEX in June 2003. While BSE TECk Index is a TMT benchmark, BANKEX is positioned as a benchmark for the banking sector stocks. SENSEX becomes the third index in India to be based on the globally accepted Free-float Methodology.

Major advantages of Free-float Methodology

1) A Free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market.

2) Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index. For example, the concentration of top five companies in SENSEX has fallen under the free-float scenario thereby making the SENSEX more diversified and broad-based.

3) A Free-float index aids both active and passive investing styles. It aids active managers by enabling them to benchmark their fund returns vis-a-vis an investable index. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the passive managers as it enables them to track the index with the least tracking error.

4) Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. This improves market coverage and sector coverage of the index. For example, under a Full-market capitalization methodology, companies with large market capitalization and low free-float cannot generally be included in the Index because they tend to distort the index by having an undue influence on the index movement. However, under the Free-float Methodology, since only the free-float market capitalization of each company is considered for index calculation, it becomes possible to include such closely held companies in the index while at the same time preventing their undue influence on the index movement.

5) Globally, the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX have adopted the same. MSCI, a leading global index provider, shifted all its indices to the Free-float Methodology in 2002. The MSCI India Standard Index, which is followed by Foreign Institutional Investors (FIIs) to track Indian equities, is also based on the Free-float Methodology. NASDAQ-100, the underlying index to the famous Exchange Traded Fund (ETF) - QQQ is based on the Free-float Methodology.

Edited By Jigar Sheth

As said yesterday GAP DOWN opening

Banking, Realty and metal stocks are likely to lead the losers as investors are likely to book profits in these stocks

Yesterday as said STBT for nifty , Today, Expect a Blood--Bath below 2790 ... Expect a Level of 2755 - 2735

On Positive Territory , Will Show the Power Only Above 2800 Mark, Will Hit 2825 - 2850 Mark.

The stock of Satyam computers might see some volatility on the news that there are 7 companies in the bidding fray for a pie in the company. L&T has already publicly shown interest to take control of the company

Pharma stocks like Aurobindo Pharma, CIPLA, Glenmark and Divis Lab might be in demand on the news that international major Merck is eyeing to acquire a prominent Indian harmaceutical company and established drug brands.

Alok Ind, Adlabs, BEML, Aurobindo Pharma, CEAT Ltd and Deccan Chronicle are the stocks that might see some action as investors will closely look at their Q3 numbers. Short term traders are adviced to stay away from the market, where as long term investors could hold on to quality companies. Over all expect the indices to close in red on the last trading day of the week.

Biocon

We recommend a ‘sell’ in Biocon for a short-term trading perspective. It is visible from the charts of Biocon that after finding support at its 52-week low of Rs 86 in late November 2008, it began to move up. This up move continued till the stock encountered resistance at around Rs 130 in early January. The stock reversed lower resuming its long-term downtrend. During this decline Biocon breached its 21 and 50-day moving averages and started loosing momentum. On January 27, the stock tumbled 7 per cent, reinforcing the bearish trend. A short-term downtrend is in force since early January. Both the daily and weekly relative strength index (RSI) are featuring in the bearish zone. The daily moving average convergence and divergence (MACD) indicator has entered in to the negative territory. Our short-term outlook is bearish for the stock. We expect it to decline further until it hits our price target of Rs 90. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 105.

Reality and banking sector

Watch out for stocks in the banking sector especially ICICI Bank and Axis Bank as the euphoria in the financial stocks across the globe might rub on to these stocks.

Reliance Power might see some action on the news of bagging 4,000 MW Tilaiya project.

IT major TCS might see its share price rise after inking a $ 100mn deal with a Uk phone company.

Unitech and SAIL were very active both on the F&O and equity side and expect some more action ahead of the F&O expiry.

Real Estate and Shippingt stocks like GE Shipping and Varun Shipping are likely to extend their gains in to Thursday's trade.

Watch out for speculative stocks that have been beaten up, like Adlabs, Deccan Chronicle and Hanung Toys

Nifty (2850) Sup 2805 Res 2915

Buy Tata Motors (147) SL 143
Tgt 154, 156

Buy HDFC Bank (912) SL 900
Tgt 933, 937

Buy Bharti Airtel (654) SL 648
Tgt 666, 670

Buy R Power (103) SL 100
Tgt 109, 110

Great Offshore

We recommend a buy in Great Offshore for a short-term horizon. It is evident from the charts of Great Offshore that after encountering resistance around Rs 550 in late September, it has seen a steep decline.

However, in early October, the stock found support around Rs 250 and began to consolidate sideways. We notice formation of a falling wedge pattern, spanning the period since October. This pattern is a bullish pattern and acts as a reversal pattern in this stock, as the falling wedge slopes down with its prevailing downtrend.

On January 28, the stock broke out of this pattern by gaining 13 per cent, accompanied with good volume. The daily relative strength index (RSI) is rising in the neutral region towards the bullish zone. Moreover, weekly RSI is displaying prolonged positive divergence and is on the brink of entering the neutral region. We are bullish on the counter from a short-term horizon. We anticipate the stock to move up until it hits our price target of Rs 283. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 243.

Open gap up then profit booking

Today Expect a Level of 2810 to 2830 where one can sell nifty

Favours, Bears Only, Below 2747 Mark.... If, Break, that Level, Expect a Level of 2727 - 2710 Mark

The key indices could turn choppy after a slightly positive start. Volatility could be higher ahead of F&O expiry

Buy ROLTA at 83.1 stop loss 80.5 target only to client
Short Term - Buy RNRL only above 51.5 stop loss 48.2 target only to client

We like Pharma, Metal and some second rung IT stocks for today's trade. Pharma stocks like Ranbaxy, Cipla and Wockhardt might see some buying interest today after a day in green yesterday.Tata Steel, Sterlite Ind and JSW Steel are our picks in the metals sector.

We recommend a trade in Rolta In (Rs 83) at current levels, as the stock has seen some speculative interest and looks ready for an upmove technically, as its broke some key technical levels on high volumes. Andhra Bank, Ballarpur Ind, Bartronics, BHEL and Cairn India are some of the stocks to keep on radar for the traders, as these companies will be reporting their Q3 numbers this week

Higher opening on the cards, Banking and Pharma stocks to lead the gainers

Markets here should get strong fillip at least in early days. Later on of course, the trade will hinge on what the RBI does in its quarterly review

Banking sector is likely to lead the rebound in today's market. Investors could bet on PSU banks like Canara Bank and a short term trade in ICICI Bank could be a profitable bet.Metal stocks like Tata Steel, SAIL and Sterlite Ind might trade in green on opening bell.

The stocks of Satyam Computers might consolidate near the Rs 40 level as things have cooled off a bit.Pharma stocks are likely to remain in the lime light after the blockbuster deal between Wyeth and Pfizer. The stock of Cipla has witnessed huge interest on very high volumes on Friday and is likely to inch higher in the morning trade as the company is touted to be a potential take over candidate.

Akruti City is likely to see huge short covering which gives a strong upward signal to the sotck. Buy at 799 with stop at 780 and book profit at 880 levels. You may carry over long position overnight
Dish TV
We recommend a buy in Dish TV India from a short-term trading perspective. It is evident from the charts of Dish TV that it has been on an intermediate-term up trend from its 52-week low of Rs 11.75, recorded in late October 2008. On December 10, the stock conclusively broke through a key resistance level of Rs 18 by surging 16 per cent. This resistance level is currently acting as a significant support level for the stock.

Taking twin support from a significant support level at Rs 18 and the intermediate-term up trendline, the stock moved up by 3.5 per cent with good volume on January 23. This up move has reinforced the bullish momentum.

The daily relative strength index (RSI) is rising in the neutral region towards the bullish zone. Considering that the intermediate-term up trendline continues to be intact, we are bullish on the stock from a short-term perspective. We anticipate the stock to move up further until it hits our price target of Rs 21 in the upcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 18.

Flat opening in nifty

we expect another choppy day as Reliance Industries’ better-than-expected results will be offset by bleak global cues. RIL has surprised the market by surpassing all optimistic estimates. The index bellwether may see some spark at least in early trades.

Auto and Realty stocks may hog the limelight amid news of fresh relief measures being considered by the Government.

Airlines may also gain on news that a cabinet panel may take up the proposal to allow foreign carriers to pick up stake in Indian airlines.

Overall, the key indices are likely to open flat, may rebound a bit but are unlikely to sustain any bounce

Tata Steel

We recommend a sell in Tata Steel from a short-term trading perspective. It is apparent from the charts of Tata Steel that after bottoming in late November 2008 at Rs 146, it rallied up to Rs 260. The stock price has appreciated almost 78 per cent between late November 2008 and early January 2009. However, presence of significant resistance at around Rs 250 triggered the stock’s reversal. Since January 7, the stock has been on a short-term down trend. While declining, the stock breached its 21-day moving average. On January 22, the stock conclusively penetrated its 50-day moving average by plummeting 5 per cent on above average volume. The daily relative strength index (RSI) has entered into the bearish zone from the neutral region and weekly RSI is also featuring in this zone. The moving average convergence and divergence also has entered in to the negative territory. We are bearish on the stock from a short-term perspective. We expect the stock’s current decline to continue until it hits our price target of Rs 160 in the forthcoming trading sessions. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 188.

Banks and Realty stocks to lead the rally

Our nifty and Educomp will rock today

Expect the indices to recover the ground lost yesterday, a gain of 200-300 points or nearly 2 percent is on the cards in morning

SEBI today announced that founders of companies must disclose shares pledged in return for loans, as authorities tighten disclosure rules in the wake of the alleged accounting fraud at Satyam Computer Services Ltd.Banking stocks will be the first ones to bounce in today's trade. Metals and Realty stocks are likely to be among the major gainers.

Some power stocks like Neyveli Lignite and Guj Industrial Power migh put on good show after experiencing double digit losses yesterday. The stock of Satyam computer might have another positive close after news reports that L&T might be very close to take over the company with the support from other stake holders.