Presentation on SENSEX

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					Presenters:



              Himanshu Jindal
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
     Exchange),e.t.c.
3.   There are approximately 12000 Securities listed
     in various exchanges whose share trading
     occurs daily.
   Every stock is represented by a certificate ―
    stock certificate or share certificate‖. Now,
    materialisation has become into
    Dematerialisation(DEMAT) then turned into
    Rematerialisation(REMAT)


   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)
   Sensitivity Index
   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
    market.
   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
    benchmark companies.

   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
    Market Capitalization.

   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
Grasim                       Glaxo
GAIL                         Indian Hotels
Reliance Industries          BPCL
ABB                          MAHINDRA Satyam
Bajaj Auto                   ACC
Tata Chemicals Limited       Gujarat Ambuja
The formula for calculating the Sensex is:



  SENSEX =
      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
company




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
    Rs.25000
    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
   to receive.



     EPS = Net Earnings
          Outstanding Shares
For Ex:
  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
  profit.

    EPS is calculated for SENSEX as well so that we
    can have a better understanding about the
    market.
    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
 about shares
    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
    SHARE VALUE.
   DIVIDENDS
   CAPITAL APPRECIATION
   HIGH RETURNS
   EASY LIQUIDITY
Compounded annual returns based on investing Rs 1000-
a-month

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
                                                        Returns
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

25000.00




20000.00




15000.00




10000.00




 5000.00




    0.00
            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
                                                                                                                             Sense
                                                                                                                             x     Bank
                                                                                                                          Comp
                                                                                                                          any                  Depo
                                                                                                                          Depos                  sits
30

25

20

15

10
                        Long-term average over 30 years:
5
                        17.6%
0

-5
     Dec-79

               Dec-81

                        Dec-83

                                 Dec-85

                                          Dec-87

                                                   Dec-89

                                                            Dec-91

                                                                     Dec-93

                                                                              Dec-95

                                                                                       Dec-97

                                                                                                Dec-99

                                                                                                         Dec-01

                                                                                                                  Dec-03

                                                                                                                           Dec-05

                                                                                                                                    Dec-07
              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
    FREE!
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
    INCREASE

   IF SUPPLY >DEMAND ---PRICES WILL
    DECREASE.
   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
    just factors.

   ―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
    Service sector

•   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
   business climate.
5. The inflows from the US constitute about 11
   percent of the total actual Foreign inflows into
   India.
Top sectors attracting investment from USA
  are :
 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)
  (8.28%).
                  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
 2008?
 GDP growth ~9%
 Forex reserves $300B+

 Sensex Jan 2003-Dec 2007 
  500%
   Inflation rose to double-digits
   Growth slowing
   Sensex down 50%
   Foreign Institutional Investment
       2007 up $19B
       2008 down $9B
   Rupee
       Down 10% against USD
       Down 17% against the Euro
BSE Sensitive Index                                                                                                                                                 All time high
                                                                                                                                                                    & correction
                                                                                                                                                                    begins
                                        22% one-day
 25000                                  decline in US,                                                                          Start of
                                        no linkage then                                        Asian Crisis;
                                                                                               Unaffected                       five-year
                                                     Harshad                                                                    bull
 20000                                               Mehta Scam                                                       Tech bull market
                                                                                                                      market &
 15000                                                                                                                bust
                           First Major Bull
                           Market
 10000

  5000

     0
                            Nov-82




                                                                                                                                Jul-00




                                                                                                                                                                             Jul-07
                                                                         Jun-91
                                              May-86




                                                                                                                                                  May-03
                                                       Jan-88
                                     Aug-84




                                                                                  Mar-93


                                                                                                    Mar-96
                  Dec-80




                                                                                                                                         Dec-01
         Apr-79




                                                                Sep-89




                                                                                           Sep-94


                                                                                                             Sep-97
                                                                                                                       Feb-99




                                                                                                                                                           Sep-04
                                                                                                                                                                    Feb-06
         Deep corrections do not matter for long-term
         investors
CAUSE OF FALL
  30.0
  25.0
         Sensex P/E Ratio 1995-2008: Overvalued?



                                   Sensex P/E Ratio




                .
  20.0
  15.0
  10.0




         1995          2000             2005          2008




                                                             47
 Spiraling oil prices – 3x in 5
  years
 Rising food prices -- 2x since
  2005
 International Financial Crisis
•Financialderegulation of banks &
offshore banking
•Globalization of the bond markets

•Globalization of banking & equity
markets
•Globalization of trade under WTO
   Asks purpose for which derivatives to be used.
   Procedures for approval of counterparties and
    brokers.
   The limits to credit, market and other risk.
   Exposure limit.
   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
diversified sectors.

3) Penetration levels for most products and services are
relatively low, implying ample room for high-growth
investment ideas.

 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.
Key Factors:
Attractive demographics
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
Nov 2009).
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
              Agriculture




                   UNION BUDGET 2009 –
                   10
                   ―Directed Towards
                   Inclusive Growth‖
                                         Infrastructure




Tax Reforms
Key Takeaways of the budget 2009-10:
 Agriculture Sector
 • 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
INFRASTRUCTURE SECTOR

Infrastructure Financing
    • 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.

Urban Infrastructure
•    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.
Power
• Allocation under Accelerated Power Development
   and Reform Program increased by 160% to INR21
   bn in FY10.
Gas
• Starting of the development of long distance gas
   pipelines leading to the creation of a National Gas
   Grid.
Disinvestment
• 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
Many
                                Emerging Business              Global Outsourcers

                                 Realty                        IT
   Sources of Advantage


                                 Agriculture                   Pharmaceuticals
                                 Power                         Engineering




                                                               Domestic
                            Global Commodities                  Demographics

                             Oil                               FMCG
                             Metals                            Auto
Low                                                             Banking


                                                Sustainability of Advantage
                          Low                                                       High


   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.
   Future Prospectus
   Budget 2009
   Forecast based on Leading Indicators – a useful
    planning tool.
             Using the Wisdom

Child Education
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                                Marriage
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We all Car goals in life like…



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Description: This Document is related to the basics of share market What is share market? Why people should buy shares? why companies issues shares? comparison between stock market and other asset class?etc