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7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION
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STOCK ANALYSIS ONLINEAnalysis of Investments in General but special attention to Indian Stock Markets including BSE SENSEX & NSE NIFTY.
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SENSEX & NIFTY INDEX CALCULATION
Stock Market performance is quantified by calculating an index using the
benchmark scrips and we all know that SENSEX is associated with
Bombay Stock Exchange and NIFTY is associated with National Stock
Exchange, but what many do not know is how those indices are
calculated along with EPS and PE values.
SENSEX
SENSEX has been calculated since 1986 and initially it was calculated
based on the Total Market Capitalization methodology and the
methodology was changed in 2003 to Free Float Market Capitalization.
Hence, these days, the SENSEX is based on the Free Floating Market
cap of 30 SENSEX Stocks traded on the BSE relative to the base value
which is 100(1978-79) and it is calculated for every 15 seconds.
Free Float Market Capitalization is defined as the value of all the
shares available for public trading excluding the promoter equity, holdings
through FDI Route, Holdings by private corporate, and holdings by
Employee Welfare Funds. .
Why Free Flow Market Cap?
1. It depicts the market more rationally
2. It removes undue influence of government or promoter share holding,
there by giving the equal opportunity for companies to be in the SENSEX
3. Almost all the Indices world over are calculated by this methodology
4. It gives Fund managers more authentic information for benchmark
comparisons.
How the SENSEX 30 Stocks are selected?
1. Listing History
2. Trading Frequency
3. Rank based on the Market Cap (Should be Among top 100)
4. Market Capitalization weight
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5. Industry / sector they belong
6. Historical Record
How SENSEX is calculated?
The formula for calculating the SENSEX = (Sum of free flow market cap of
30 benchmark stocks)*Index Factor
Index Factor = 100/Market Cap Value in 1978-79.
Where, 100 is the Index value during 1978-79.
Example:
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.
NIFTY
The National Stock Exchange (NSE) is associated with NIFTY and it is
also calculated by the same methodology but with two key differences.
1. Base year is 1995 and base value is 1000.
2. NIFTY is calculated based on 50 stocks.
Everything else remains the same in NIFTY Index calculation as well.
SENSEX EPS
We all know Earnings per Share (EPS) is calculated for all the companies
to show how much a company generates the net profit for every
outstanding share. Likewise EPS is calculated for SENSEX as well so
that we can have a better understanding about the market.
Lets see how it is calculated. All you need for this calculation is EPS of
all the 30 SENSEX stocks along with their Free Float Adjustment Factor.
Example: 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.
Experi...
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7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION
http://www.stockanalysisonline.com/2009/02/sensex-nifty-index-calculation.html 3/12
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 which should be somewhere around 900 these
days. We can calculate NIFTY EPS in the same manner.
SENSEX PE
PE Ratio is calculated for companies which show what the investors are
ready to pay for every rupee of earnings. If we calculate the same thing by
taking into account all the 30 SENSEX stocks, then we will end up with
SENSEX PE.
How to calculate?
Consider the same HDFC Bank. Multiply the Market Price of HDFC Bank
with number of shares outstanding which should be equal to Market
Capitalization.
Market Capitalization = Share Price * Total Shares
Then calculate the Net Profit by multiplying the EPS with Total Shares.
Do this for all the 30 SENSEX stocks.
SENSEX PE = Sum of Market Capitalization of 30 SENSEX Stocks
divided by Sum of Net Profit of all the 30 SENSEX Stocks.
At present the SENSEX PE is around 12 and it provides useful
information about SENSEX. Analysts predict the level of SENSEX using
this number only. Suppose, SENSEX PE is 12 and SENSEX EPS is 900,
then the Index = 10800. For example, if you believe, earnings of the
companies would grow at 10 percent this year, then apply the same
growth rate to both SENSEX PE and SENSEX EPS to predict the
SENSEX next year which would be 13*1000 = 13000.
Conclusion: SENSEX PE and SENSEX EPS give some useful
information about which way the market might move. But it is not
necessary that the information you get should hold true always. As we
know, Stock Market is a place, where no one can be right all the time.
Kumaran Seenivasan
Posted by Kumaran Seenivasan at 9:38 PM
Labels: SENSEX Calculation
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52 COMMENTS:
Shabu's, February 17, 2009 at 10:17 PM
Dear Mr Kumaran,
Its excellent... and simple projection of the formula with
examples about the most talked indices. Such posts will help
out the common investors in great way.... keep it up and
regards
Shabu
Dr.Krishna, February 18, 2009 at 2:38 AM
Kumaran, excellent article. I added a link to this article. Keep it
up. Good begining.
Nifty Stock Market
Nifty Intraday
Nifty Trading Tips
Nifty Index
Indian Stock Trading
NSE Stock Price
7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION
http://www.stockanalysisonline.com/2009/02/sensex-nifty-index-calculation.html 4/12
DBA-Oracle-Admin/StockNvestor, February 18, 2009 at 4:17 AM
Dear Sir,
Great work...thanks for spreading knowledge,the post is in
simple language and it can be understand easily....sir you are
doing a great work...keep the good work going....god bless you
with more knowledge...there is one saying the people who got
enough knowledge is said to be an knowledge GOD...sir you
are god of knowledge.
Kumaran, February 18, 2009 at 6:00 AM
Thank You all for your appreciative comments and I will try my
best to give you the best possible content you can have on the
topics I choose to write.
Eeswaran, February 18, 2009 at 8:39 AM
It's is really excellent...Post some of the share market basics -
to help the beginners...
BULLS, February 19, 2009 at 12:51 AM
Hello Mr Kumaran,
The most striking aspect of your posting is 'Simplicity'.
Simplicity blended with logical conclusions & explanations.
And, most of all, your ability to touch diverse topics of
discussion in every other new article.
-BULLS
madankumarrajan, February 22, 2009 at 10:03 AM
Kumaran,
I am a newbie to stock market. This post was really useful.
Thanks :-)
Anonymous, July 8, 2009 at 9:29 AM
Really indeed good article Mr.Kumaran.
It would be great if you could share some article about ONLINE
TRADING i.e., Intra trading and how to benefit from such
trading.
Micky, September 12, 2009 at 7:41 AM
Thanks Kumaran
Kannan, September 19, 2009 at 10:09 PM
Hi Kumaran,
Very good article. Would you suggest good resources where I
can get more information.
7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION
http://www.stockanalysisonline.com/2009/02/sensex-nifty-index-calculation.html 5/12
Thanks,
Kannan
Kannan, September 19, 2009 at 10:09 PM
Hi Kumaran,
Very good article. Would you suggest good resources where I
can get more information.
Thanks,
Kannan
Anonymous, November 13, 2009 at 3:50 AM
I found this site using [url=http://google.com]google.com[/url]
And i want to thank you for your work. You have done really
very good site. Great work, great site! Thank you!
Sorry for offtopic
sharetipsinfo, December 11, 2009 at 9:24 AM
Hi,
The market is currently enjoying a good rally which has seen
most stocks gain from competitive advantage and it would be
advisable for all stock market enthusiasts to seize this
opportunity and plan their investments in a safer yet conducive
stock market. With NIFTY hovering around 4800-4900 +, it is
expected to take hold of this currently rally and be realistically
be closest to 5000 more so than before in what should be its
new 52 week high.
Lot many untouched stocks are still there which are ready to
blast any moment.
Regards
SHARETIPSINFO TEAM
Pushkar, December 28, 2009 at 5:07 AM
Hello,
I have done the following analysis(all are paper trades):-
Case 1. SIP in nifty since 1/1/19999 and sold all yesterday
calculated the returns
Case 2. Entered the market at PE of 11 or below. Kept on
buying every month until the PE was under 15. Stopped buying
ones the PE is above 15. Exit all at PE 27. Re-entry only at
PE at 11 and then buy every month until PE is below 15and
so on.
Case3. Case 2 + I shorted the mkt at PE 27 and covered all at
PE 11, rest all is same as case 2.
Returns:-
Case1. 18% CAGR i.e. 18% per year cumulated annual
compounding for 11 years.
Rs 100 per month became Rs 37000 after 11 years. net profit
is Rs 25000(Rs 13200 is investment amount)
Case2. 30% CAGR. Rs 100 per month became 78000 after 11
7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION
http://www.stockanalysisonline.com/2009/02/sensex-nifty-index-calculation.html 6/12
years.
Case3. 38% CAGR Rs 100 per month became 122000 after 11
years.
Please note that in cases 2 and 3 when I am not able to enter
each month, I keep those Rs 100 in Fixed deposits, one my
entry level comes(either for short or for long, I liquidate my FDs
and enter the markets) so investment amount in all the 3
cases is exactly the same.
In these 11 years there were not more than 4-5 buys and 2
sells in case 2 and 3.
Case 3 outperformed case 2 and case 2 outperformed case 1.
My questions:-
I plan to implement this strategy for my investments. I want to
know how safe it is to go short at 27. Isnt it possible that nifty
PE might just move into some different range, maybe the next
time when the fall comes after say 5 years, maybe nifty PE
could be 32 or 33is that possible? Case 3 gets into a very
big risk if this happens.
Regards,
Pushkar
Anonymous, March 24, 2010 at 2:42 AM
REALLY YOU GUYS HAVE DONE VERY GOOD WORK....
arindam, April 8, 2010 at 12:52 AM
Dear Mr Kumaran
Hats off to you for this explanation.
Regards
Arindam Chatterjee
BIM
PRAVIN LATHKAR, April 15, 2010 at 8:55 AM
IT IS GOOD COMBINATION OF THEORY AND PRACTICAL IN
SIMPLE MANNER, ANY ONE CAN UNDERSTAND WITHOUT
ANY DIFFICULTY
stock tips, May 11, 2010 at 12:57 AM
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7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION
http://www.stockanalysisonline.com/2009/02/sensex-nifty-index-calculation.html 7/12
amarinvestments
suresh, May 24, 2010 at 9:28 AM
dear sir
you have explained the basics of Nifty and SEENSEX in very
simple and easy manner. as a fresher to market, i am really
indebited to your explanation
great work and keep it up sir
from suresh
Anonymous, May 28, 2010 at 10:26 AM
SIR can you kindly tell me which net profit figures to consider
for SENSEX EPS CALCULATION
(consolidated/standalone/audited/unaudited/result of group as
a whole)
Please help me...
Anonymous, July 31, 2010 at 10:18 AM
i am in CA final and i havnt got such a simpler way of
calculation of indices.great job!!
KnowYourProfit, September 24, 2010 at 5:54 AM
This blog is quite nice and informative blog created by the
webmaster
As per our previous posting we had already told that the Indian
Stock Market is now in such a position that either side
breakout can be witnessed soon and Today Sensex has
Touched 19000 level Sensex
Team
KnowYourProfit
+91-9871142419
Raghunath J Pai, October 11, 2010 at 12:02 PM
Hi thank u for the article..but i would like to ask u one doubt..
what is the base value for co.s which came into existence after
1978-79..?? to calculate sensex...pls help..!
Anonymous, January 6, 2011 at 2:28 PM
Hi kumar,
The information provided by you would be worth taken by all
finance related graduates and post graduates, so i would like
to cheer and buck up you for further interest things regard to
market finance very much in future
Thank you,
Srikanth Gowda, karnataka
Anonymous, January 14, 2011 at 10:39 AM
If you are open to having a guest blog poster please reply and
7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION
http://www.stockanalysisonline.com/2009/02/sensex-nifty-index-calculation.html 8/12
let me know. I will provide you with unique content for your
blog, thanks.
Anonymous, February 17, 2011 at 11:49 AM
Hi,
Thnx for the info its v.useful and the way the it is explained its
v.nice....
Think over it once, February 24, 2011 at 6:02 AM
May I know what is Index factor in the calculation of SENSEX
Thank you,
Sneha.
Stock Tips, March 26, 2011 at 7:42 AM
It was a awe-inspiring post and it has a significant meaning
and thanks for sharing the information.Would love to read your
next post too......
Thanks
Regards
Stock Tips
stock tips, May 20, 2011 at 1:40 AM
Very good post, I was really searching for this topic, as I
wanted this topic to understand completely and it is also
very rare in internet, that is why it was very difficult to
understand.
Thank you for sharing this.
regards:
Stock Tips
Ritesh. P, May 23, 2011 at 2:31 PM
A very useful post. I like the way you've explained the concepts
using numbers. Keep it up, Kumaran. :)
Chan, May 26, 2011 at 11:32 AM
Hi Kumaran,
The most essential knowledge for a trader being explained in
simple terms.
Tons of Thanks.
Keep Feeding us
venki, June 17, 2011 at 7:47 AM
Excellant.......nice article....
--Venkip
Hyderabad
Suresha, July 11, 2011 at 7:06 PM
Helllo sir,
Excellent!!! Appreciate your hard work. its really helpful
7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION
http://www.stockanalysisonline.com/2009/02/sensex-nifty-index-calculation.html 9/12
Regards,
Suresha
RAVI BHANDARI, July 16, 2011 at 12:23 AM
It's very nice sensex calculation. But it would be better if you
had sown how the base market capitalisaiton is
calculated...instead of assuming base market
capitalisation.And I want to know how the price of stock
changes? And details about the stock selection method
Anonymous, September 14, 2011 at 2:22 AM
Explained very well.Could not find this in NSE and BSE as well
with such granularity. I think NSE and BSE websites should be
bit eloberate while explaining the calculation
shibashish sahu, February 1, 2012 at 12:56 PM
Its really easy to understand for the learner which can give an
overall idea about sensex and nifty...............
Anonymous, February 19, 2012 at 12:47 AM
thanks a lot
vishal, March 1, 2012 at 5:52 AM
Thanks so much for this! I haven't been this moved by a blog
for a long time! Youve got it, whatever that means in blogging.
Anyway, You are definitely someone that has something to
say that people need to hear. Keep up the good work. Keep on
inspiring the people!
stock tips,nifty tips,commodity tips
kavan, March 9, 2012 at 12:17 AM
Mr. Kumaran,
It really fantastic work and the way to explain entire calculation
and formation of benchmark is so good and on its very easy to
understand entire thing. so its help alot.
thank you so much
Unknown, May 6, 2012 at 9:04 AM
Dear kumaran sir
It is the best article i ever read about the sensex calculation.
Thank you very much for such a beautifull article. Kindly add
some more articles related to finance.
Thank you sir
Aswin, May 22, 2012 at 4:46 AM
Dear Sir,
That was an excellent explanation.. how can i get my other
doubts clarified from you ??
7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION
http://www.stockanalysisonline.com/2009/02/sensex-nifty-index-calculation.html 10/12
Paul, June 7, 2012 at 5:22 AM
thanks for this post. This post makes a great point about
focusing your efforts.
stock tips,equity tips,stock market india | Currency Tips,Forex
trading Tips,Forex Pairs | commodity tips
Payal Gupta, August 12, 2012 at 12:19 PM
Excellent article Sir, it helped me a lot in understanding the
significance of SENSEX PE AND SENSEX EPS.
Adil Thaha S V, August 22, 2012 at 8:25 AM
Thanks...
Kiran Malladad, August 29, 2012 at 1:31 PM
Hello Sir
It was really worth of reading the information. thanks for sharing
with everyone
Regards
Kiran Malladad
Kiran Malladad, August 29, 2012 at 1:33 PM
Hello Sir
Thanks for the Valuable information it was worth of sharing ur
knowledge with everyone
Thanks
regards
Kiran Malladad
Anonymous, September 6, 2012 at 4:03 AM
It is really a good article for public.thanks
Dr.Sudhakaran, September 8, 2012 at 8:54 AM
Dear Mr.Kumaran,
The intricacies of sensex and nifty indices are explained in a
lucid manner.Congrats for the same.The tricks of the trading if
available in such simple form will be a boon.
Regards
Sudhakaran
Sridhar Gopalakrishnan, September 16, 2012 at 5:45 AM
Thanks Kumaran for explaining this in simple terms..
I have a question though on tha last part where you talked
about growth.
If the growth of companies is 10% , how is that the Sensex
moves to 13*1000 from 12*900?
Please explain this part as you get time..
Regards
Sri
7/21/2014 Stock Analysis Online: SENSEX & NIFTY INDEX CALCULATION
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Newer Post Older Post
harika, November 16, 2012 at 11:36 PM
thanks sir,The most essential knowledge for a trader being
explained in simple terms. Which helped me a lot.
satyapriya, January 10, 2013 at 5:04 AM
Dear Kumaran,
It is indeed a splendid work by you. i was wondering in internet
regarding how the stock indices are calculated and was
surprised to see an article giving very clear-cut and precise
idea. Very good work by you.
Keep it up
Regards
Satyapriya B S Panda
misheeta, March 13, 2014 at 5:11 AM
really worth reading for post...
click here for more
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