Sensex and Nifty Essay Example for Free

Sensex and Nifty EssayIn that case, the base economic value is score to one C and lets strickles that the stock is currently trading at 200. Tomorrow the price hits 260 (30% increase in price) so, the index depart move from century to cxxx to record that 30% growth. Now lets assume that on day 3, the stock finishes at 208. Thats a 20% fall from 260. So, to indicate that fall, the Sensex will be corrected from 130 to 104(20%fall). As our second step to understand the index calculation, let us try to extend the same logic to two stocks A and B. A is trading at 200 and lets assume that the second stock B is trading at 150.Since the Sensex follows the merchandise place capitalization weighted method, we have to find the market capitalization (or size of the company- in terms of price) of the two companies and proportionate weightage will have to be devoted in the calculation. Thats simple. Just multiply the total number of shares of the company by the market price. This fi gure is technically called market capitalization. Back to our example- We assume that company A has 100,000 shares outstanding and B has 200,000 shares outstanding.Hence, the total market capitalization is (200 x 100000 + 150 x 200000) Rs 500 lakhs. This will be kindred to 100 points. Lets assume that tomorrow, the price of A hits 260 (30% increase in price) and the price of B hits 135. (10% drop in price). The market capitalization will have to be reworked. It would be 260 x 100,000 + 135 x 200,000 = 530 lakhs. That means, due to the changes in price, the market capitalization has moved from 500 lakhs to 530 indicating a 6% increase. Hence, the index would move from 100 to 106 to indicate the net effect.This logic extends to many selected stocks and this calculation process is done every minute and thats how the index moves What we said was the general method to crap indices. Since, the Sensex consists of 30 large companies and since its shares may be held by the government or p romoters etc, for the purpose of calculating market capitalization only the free fluff market value is considered, instead of the total number of shares. What is free float? Thats the total number of shares in stock(predicate) for the public to trade in the market. It excludes shares held by promoters, governments or trusts, FDIs etc..To find the free float market value, the total value of the company (total shares x market price) is further multiplied by a free float market value factor, which is nothing but the percentage of free float shares of a particular company. So logically, the company which has more public holding will have the highest free float factor in the Sensex. This equalizes everything. Example- lets assume that the market value of a company is Rs 100,000 Crore and it has 100 Crore shares having a value of Rs 1,000 each but only 20% of it are available to the public for trade. The free float factor would be 20/100 or 0. 0 and the free float market value would be . 20 x 100,000 = 20,000 Crores. You need not calculate the free float market capitalization since its available straight on the BSE websiteAt this point, the Sensex is at 12500. What would be the value of Sensex if the free-float market capitalization is Rs 11,50,000 Crore? .. The answer is 14,375. NIFTY 50 NIFTY was coined from the two course National and FIFTY. The word fifty is used because the index consists of 50 actively traded stocks from various sectors. Similarly Nifty is calculated using the same methodological analysis adopted by the BSE in calculating the Sensex but with three differences. They are The base year is taken as 1995 The base value is set to 1000 Nifty is calculated on 50 stocks actively traded in the NSE 50 top stocks are selected from 24 sectors.