Sensex and Shares
SHARES,EQUITY ALL ARE VARIOUS
NAMES GIVEN FOR ―STOCK‖
Stock is a share in the ownership of company.
Technically, u will be having a right in
company’s assets and earnings.
As a owner, u will be getting a share in profits
also. These are termed as ― DIVIDENDS‖
1. It is a place where dealing of share in the
company occurs on day to day basis.
2. There are 1100 exchanges where share
Sales/Purchase occurs. Like BSE(Bombay
stock Exchange),NSE(National Stock
3. There are approximately 12000 Securities listed
in various exchanges whose share trading
Every stock is represented by a certificate ―
stock certificate or share certificate‖. Now,
materialisation has become into
Dematerialisation(DEMAT) then turned into
As a shareholder, u need not say the day- to-
day running of the business. Management has
to work for the maximization of value of
shareholders, if it did not do so, they can be
removed by ― voting‖ in the AGMs.
SHARES WILL BE HAVING LIMITED
LIABILITY AND SO NOBODY WILL TOUCH
UR PERSONAL ASSETS IF SOMETHING
HAPPENS TO THE COMPANY.
U CAN GET THESE SHARES EITHER FROM
PRIMARY OR FROM SECONDARY MARKETS
( BSE AND NSE)
We can not study each and every stock in the
market and hence we need an indicator which
shows the performance of all stocks in the
This indicator has to be formed from different
sectors of company based on some criteria
which is most reliable and which can be
assumed for the whole market.
SEBI(Security exchange Board Of India) is the
monitory agency of Sensex.
SENSEX is the index which represents the
trend of the stock market ( BSE) by taking 30
NIFTY INDEX is the benchmark index for NSE
by taking 50 companies into consideration.
Calculation Of Sensex
SENSEX has been calculated since 1986.
Initially it was calculated based on the Total
Market Capitalization methodology and the
methodology was changed in 2003 to Free Float
These days, the SENSEX is based on the Free
Floating Market cap of 30 STOCKS.
Stocks traded on the BSE relative to the base
value which is 100(1978-79) and it is calculated
for every 15 seconds.
Oriental Bank National Aluminium Co Ltd
Mahindra & Mahindra HPCL
SAIL Tata Tea
Tata Motors Hero Honda
ONGC Tata Power
Shipping Corp Of India Ltd Sun Pharma
Tata Iron & Steel Co Ltd Ranbaxy
BHEL ICICI Bank
IPCL SBI Bank
GAIL Indian Hotels
Reliance Industries BPCL
ABB MAHINDRA Satyam
Bajaj Auto ACC
Tata Chemicals Limited Gujarat Ambuja
The formula for calculating the Sensex is:
Sum of FFMC of 30 benchmark stocks*100
Base Value of FFMC(1978-79)
FFMC = MARKET CAPITALISATION*FF FACTOR
MARKET CAPITALSIATION =
Market price of the company * No. of shares available in the
FF FACTOR= No. of shares available for Trading
Total no. of shares of company
Free-float market capitalization takes into
consideration only those shares issued by
the company that are readily available for
trading in the market.
It 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.
Assume SENSEX has only 2 stocks namely SBI
and RELIANCE. Total shares in SBI are 500 out
of which 200 are held by Government and only
300 are available for public trading. RELIANCE
has 1000 shares out of which 500 are held by
promoters and 500 are available for trading.
Assume price of SBI Stock is Rs.100 and
Reliance is Rs.200.
Then "free-Floating Market Cap" of these 2 companies
(300*100+500*200) = 30000+100000 = Rs. 130000
Assume Market Cap during the year 1978-79 was
Then SENSEX = 130000*100/25000 = 520.
The methodology in the example is exactly followed to
calculate the SENSEX, only difference being the
inclusion of 30 stocks.
It will give u an idea that for every share
that u hold, how much earnings u r going
EPS = Net Earnings
Net earnings = Rs 1,00,000
Outstanding shares = Rs. 10000
EPS = Rs. 10..which means that for every one
share u held in the company, u get Rs. 10/- as
EPS is calculated for SENSEX as well so that we
can have a better understanding about the
All you need for this calculation is EPS of all
the 30 SENSEX stocks along with their Free
Float Adjustment Factor.
SENSEX EPS=EPS OF INDIVIDUAL COMPANIES*FF FACTOR
Take HDFC Bank for the example. Present EPS for
HDFC Bank is Rs. 44 and Free Float Adjustment Factor
is 0.85. Free Float Adjustment factor of 0.85 just means
85% of the total outstanding shares are held by Non-
Promoters and are available in the market for trade.
Multiply the EPS with Adjustment Factor which is
44*.85 = 37.4. This 37.4 is the contribution of HDFC
Bank towards SENSEX EPS. Likewise we need to
calculate for all 30 stocks and add it together to get the
final value of SENSEX EPS .
The P/E looks at the relationship between the
stock price and the company’s earnings.
P/E = MARKET PRICE OF SHARE
Earning Per Share
It tells how much the share holders are ready to
pay per share for every one rupee of earnings
from the company.
A high P/E indicates that investors are ready
to pay high amount for the stock.
Better P/E ratio of 15 can be taken as
benchmark for the assessing the company.
If we calculate the PE by taking into account all the 30
SENSEX stocks, then we will end up with SENSEX PE.
How to calculate?
SENSEX PE = Sum of Market Capitalization of 30 SENSEX Stocks
Sum of Net Profit of all the 30 SENSEX Stocks.
Market Capitalization = Share Price * Total Shares
Then calculate the Net Profit by multiplying the
EPS with Total Shares.
Net Profit=EPS*Total Shares
Do this for all the 30 SENSEX stocks.
Why Promoters and
People are Crazy
RAISING OF MONEY CAN BE DONE IN
TWO WAYS FOR ANY COMPANY.
1. EQUITY FINANCING( ISSUE OF SHARES)
2. DEBT FINANCING ( ISSUE OF BONDS).
IN DEBT FINANCING, UR PRINCIPAL
AMOUNT WILL BE GUARANTEED WITH
SOME INTEREST AGREED UPON.
IN EQUITY, U MAY OR MAY NOT GET
DIVIDENDS. THE NEXT OPTION
AVAILABLE IS CAPITAL APPRECIATION OF
SHARE WHICH WILL BE DONE BY
INCREASE OR DECREASE THE PRICE OF
Compounded annual returns based on investing Rs 1000-
Asset Class Years
25 20 15 10 5
Sensex 16.7 15.2 14.5 20.0 22.4
Gold 6.6 8.4 11.3 17.1 22.7
FD 9.2 9.2 8.8 7.5 6.6 in %
Bond yield 10.1 10.2 9.9 8.8 7.8
Inflation 6.7 6.8 5.8 5.1 5.6
Selecting Right Asset Class
Equity market (represented by BSE Sensex) has outperformed
all other investment avenues
1990-91 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Long-term average over 30 years:
Lowest level of annual returns over 25 years: 14.6%
This is in spite of …
• Two wars • At least 3 recessionary periods
• At least three major financial scandals • 10 different governments and
• Assassination of 2 prime ministers • An unfair share of natural disasters
EQUITIES – A TAX PARADISE
1 If you sell your investment in more
than 12 months (long term), you will
2 NOT pay any tax!
3 And even the Dividends are TAX
Factors which affects
the Price of SHARES
The best reason for this is LAW OF DEMAND
AND LAW OF SUPPLY
IF DEMAND > SUPPLY—PRICES WILL
IF SUPPLY >DEMAND ---PRICES WILL
Because of the likings or disliking of a
particular stock by people.
Behavior in turn depend on ― EARNINGS‖ of
the company as in the long run they become
―Earning seasons‖ ( quarter results) are the
factor only for knowing the stock behavior.
• All changes are inter-related.
• India’s GDP composition is akin to developed
countries with more than 50% coming from
• Capital spending along with consumer
spending will compound GDP growth.
• Monetary Policy Of RBI as it impacts directly on
availabity of money in market
They has an impact on
1. Country's trade balance
2. Increasing labour standards and skills
3. Transfer of new technology and innovative ideas
4. Improving infrastructure, skills and the general
5. The inflows from the US constitute about 11
percent of the total actual Foreign inflows into
Top sectors attracting investment from USA
Fuels (Power & Oil Ref.) (35.93%)
Telecommunications (radio paging, cellular
mobile & basic telephone services) (10.56%)
Electrical Equipment (including Computer
Software & Electronics) (9.50%)
Food Processing Industries (Food products
& marine products) (9.43%)
Service Sector (Fin. & Non-Fin. Services)
Your index is important not the market
Market/ Sensex Sensex flat since 1992
Wealth creation has occurred
Interest rates, Currencies, Oil prices, Politics..
Macroeconomics do not alter basic competitiveness
What Happened in
GDP growth ~9%
Forex reserves $300B+
Sensex Jan 2003-Dec 2007
Inflation rose to double-digits
Sensex down 50%
Foreign Institutional Investment
2007 up $19B
2008 down $9B
Down 10% against USD
Down 17% against the Euro
BSE Sensitive Index All time high
25000 decline in US, Start of
no linkage then Asian Crisis;
20000 Mehta Scam Tech bull market
First Major Bull
Deep corrections do not matter for long-term
CAUSE OF FALL
Sensex P/E Ratio 1995-2008: Overvalued?
Sensex P/E Ratio
1995 2000 2005 2008
Spiraling oil prices – 3x in 5
Rising food prices -- 2x since
International Financial Crisis
•Financialderegulation of banks &
•Globalization of the bond markets
•Globalization of banking & equity
•Globalization of trade under WTO
Asks purpose for which derivatives to be used.
Procedures for approval of counterparties and
The limits to credit, market and other risk.
Procedure for monitoring the liquidity risk.
The professional qualification of those
entrusted with derivative activities.
The valuation methodology.
11th GCA, Mumbai 50
Where we see the
SENSEX in Future
India—the next Asian tiger
•India provides significant potential for investors
1) We believe India’s economy could be entering a
golden period—we expect real
GDP growth of 8-9% pa for the next 10-20 years.
2) The stock market is relatively
liquid (US$5bn average traded value) with several
3) Penetration levels for most products and services are
relatively low, implying ample room for high-growth
4) Attractive demographics and a high savings rate
imply that demand for equity stocks and mutual funds is
likely to multiply in the next 10-15 years.
Strong economic growth
Low penetration levels
Retail loans <10% of GDP
Significantly under-leveraged relative to Asian peers
India spends 5% of GDP vs. China at 11-12%
India is likely to spend US$2.5tn over next 15 years
Only 10% of household savings are in equities
Pension savings are currently invested in bonds,
equity likely to increase significantly
young and growing labour force.
SENSEX VALUE = SENSEX EPS * SENSEX PE
July 2010 Sensex target of 21,000
July 2010 Sensex target of 21,000 is based on a
forward PE multiple of 14.9x on FY10E EPS. We
forecast a Sensex earnings CAGR of 12% in the next
15-20 years. Assuming a long-term average PE
multiple of 15x, the Sensex could reach a level of
100,000 by FY25 (it is 16,848.33 currently as on 13
Fundamental reasons for this estimation:
Equally impressive has been the sharp increase in the share of exports
and trade in the economy.
Exports of goods and services reached 51% of GDP last year.
India’s potential for mobilizing the large no. of lower-skilled workers in
the rural economy.
India has also consistently recorded rates of total factor productivity
growth in the past few decades, at around 0.5% to 1% per annum .
There are good reasons to believe productivity growth is rising
at the margin.
Finally, Indian demographics are highly conducive to growth.
Falling dependency ratios and a rising labour force.
Availability of a strong pool of savings in the years to come.
Budget 2009 and its impacts
UNION BUDGET 2009 –
Key Takeaways of the budget 2009-10:
• Interest subvention given for short term crop loans upto INR3
lakhs at 7% per annum. Additional 1% interest subvention will be
given to farmers who repay their short term crop loan on time.
Estimates for the said purpose.
• Debt Relief
• Accelerated Irrigation Benefit
• Increase in Budget Allocation Rashtriya Krishi Vikas Yojana by
30% in FY10.
• Fertilizer Subsidy
• Investment in infrastructure need to be bolstered to 9% of GDP by 2014.
• Infrastructure Finance Company Ltd IIFCL to refinance 60% of the commercial
bank loans for PPP projects over the next 1-2 Years.
Highways and Railways
• Increased allocation to National Highway Authority of India (NHAI) for the National
Highway Development Project (NHDP) made to INR159.5 bn (up 23%) over FY09.
• Allocation for railways increased to INR158 bn, an increase of 46% YOY.
• Allocation under Jawaharlal Nehru Urban Renewal Mission (JNNURM) increased
to INR 128.87% (up by 87%) in FY10 over FY09.
• Allocation for housing and provision of basic amenities to urban poor including
provision for Rajiv Awas Yojana increased to INR397.3 bn.
• Provision for the project BRIMSTOWA initiated in 2007 enhanced from INR2 bn in
Interim to INR 5 bn in FY10.
• Allocation under Accelerated Power Development
and Reform Program increased by 160% to INR21
bn in FY10.
• Starting of the development of long distance gas
pipelines leading to the creation of a National Gas
• Public sector enterprises like banks and insurance
will continue to function in the public sector with
full government support for capitalization.
Financial Sector reforms
• Scheduled commercial banks will be allowed to set
up off-site ATMs without prior approval
Emerging Business Global Outsourcers
Sources of Advantage
Global Commodities Demographics
Sustainability of Advantage
Note : Companies may change characteristics over time!
What is Sensex:- Barometer of Business climate
How it is calculated:-FFMC
Why companies and individuals keen about
shares-Facilitates capital formation.
Likely to lead to boom in other asset classes as
the profits get ploughed.
Forecast based on Leading Indicators – a useful
Using the Wisdom
We all Car goals in life like…
Any Query Please Mention