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Wednesday, October 5, 2011

CALCULATION OF NSE AND BSE INDEXES

CALCULATION OF NSE AND BSE INDEXES
We have two major stock exchanges in India. They are NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). I would like to share calculation of NSE and BSE indexes from this article. Because they are the main indicators to the investors, stock market analyst etc., The tools (MACD, ROC, PIVOT POINT, EMA) which are used to calculate or predict stock market movements. They are also requiring index values of NSE or BSE.
Bombay Stock Exchange OR Sensex (Sensitive Index)
Bombay Stock Exchange (BSE) is an oldest stock exchange in Asia. It was started in 1875 as “The Negative Share and Stock Brokers Association”. There is a story behind to BSE i: e, since 1850’s Four Gujarati and One Parsi or parsee (which indicates Parsis derived from a group of Persian Zoroastrians who came to India during 10th century AD) stockbrokers have met in Town Hall of Mumbai. This is an informal meeting among them. Time gone, no of brokers were increased then they would like to convert this meeting as a formal one. So they had found a place in 1874 at DALAL STREET and they made their office in DS. It is become an official organisation in 1875, called “The Negative Share and Stock Brokers Association”. BSE was acknowledged by Indian government in 1956 under Securities Contracts Regulation Act (SCRA). An electronic trading system was introduced by BSE in 1995 i: e, BOLT – (BSE On line Trading) which has a capacity to make 8 million orders per day. Base value of SENSEX is 100 and base year is 1978 – 1979. The calculation of BSE was started from 1986. Earlier it was calculated by using total market capitalisation. Since 2003, it was calculated by using free float market capitalisation. SENSEX is calculated for every 15 seconds.
Besides, BSE has listed more than 5033 companies. BSE is the first exchange in India to receive ISO 9001: 2000 certification.  It is also the first Exchange in India and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BOLT.
National Stock Exchange OR NSE OR NIFTY
The National Stock Exchange was promoted by leading financial institutions with the command of government of India. NSE was incorporated in November 1992 as a tax paying company. In April 1993, it was approved as a stock exchange by securities exchange board of India. NSE was started operations in the Wholesale Debt Market segment in June 1994. The Equities trading was started from November 1994 and Derivatives trading was stared from June 2000. Index value of NIFTY is calculated by using 50 largest companies from 24 different sectors. Base value of NIFTY is 1000 and base year is 1995. NSE is also calculated for every 15 seconds.
Criteria’s to select 50 or 30 Companies among NSE / BSE list of Companies
·        BSE Listed Companies as on 05 – 10 – 2011 is 5,085.
·        NSE Listed Companies as on 05 – 10 – 2011 is 1,552.

ü  A company must have one year history as a BSE listed company.
ü  A company should be among top 100 in BSE listed companies.
ü  A company should be a market leader in the particular sector.
ü  Each company should more than 0.5% of total market capitalization of Sensex.
ü  A company should have well past record.
ü  Company should be traded in each and every day of last one year (Except market holidays).
After sort listing, we go to the calculation of BSE/NSE indexes.  Before that we must know what is market capitalization. I would to share that too.
Market capitalization:
Market capitalization is total worth of a company (i.e. outstanding shares of a company). Outstanding shares are nothing but the shares which are not hold by the company or the shares which are hold by public, investors, employees etc.
Formula:


Market Capitalization = No of Shares Outstanding * Market price per share
Total Market Capitalization = Market capitalization of NSE 50 / BSE 30 companies.




Free Float Market Capitalization
This is directly opposite to the Market capitalization. i.e. Except the Locked Shares (which includes promoter holdings, government holdings).



Free float Market Capitalization = Share Price * (Shares Outstanding – Locked shares) OR
Free float market capitalization =No. of outstanding share * market price of share
Total Free float Market Capitalization = Free float Market capitalization of NSE 50 / BSE 30 companies.



For Example:
1.XYZ:
Imagine XYZ one of the company (which is among NSE 50 or BSE 30).
XYZ has 1000 shares among that government is holding 300 shares, promoter holding is 500 shares, and 200 shares are available in market and price of a share is Rs. 10.
The calculation would be,
·        Market capitalization of the company is 1000 X 10 = 10,000.
·        Free float market capitalization of company is 200 X 10= 2,000.
2.ZYX:
ZYX has 2000 shares among that government is holding 500 shares, promoter holding is 500 shares, and 1000 shares are available in market and price of a share is Rs. 20.
The calculation would be,
·        Market capitalization of the company is 2000 X 20 = 40,000.
·        Free float market capitalization of company is 1000 X 20= 20,000.
Total Market Capitalization
Total Market Capitalization = Market capitalization of NSE 50 / BSE 30 companies.
Total Market Capitalization = XYZ + ZYX + … + ADD UP TO NSE 50 OR BSE 30.
EXAMPLE
Total Market Capitalization = 10,000 (XYZ) + 40,000 (ZYX) + … + ADD UP TO NSE 50 OR BSE 30.
Therefore, Total Market Capitalization = 50,000
Total Free float Market Capitalization = Free float Market capitalization of NSE 50 / BSE 30 companies.
Total Free float Market Capitalization = XYZ + ZYX + …+ ADD UP TO NSE 50 OR BSE 30.
Total Free float Market Capitalization = 2,000 (XYZ) + 20,000 (ZYX) +…+ ADD UP TO NSE 50 OR BSE 30.
Therefore, Total Free float Market Capitalization = 22,000.
Now let us calculate index value of NSE / BSE
Formula for SENSEX calculation:


SENSEX = (sum of free float market cap of 30 major companies of BSE) *
Index value in 1978-79 / Market cap value in 1978-79.


Assume market capitalization is 2000. Now, as per formula: 
SENSEX = 100000 X 100 / 2000 = 5000
Value of Sensex is 5000.
Formula for Nifty calculation:



NIFTY = (Sum of free flow market cap of 50 major stocks of NSE) *
Index value in 1995 / market cap value in 1995.



Assuming the market capitalization value during 1995 is 20,000.
NIFTY = 100000 x 1000 / 100000 = 1000.
Value of Nifty is 1000.

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  10. PLS HELP :


    i got the Free Float Market Capitalisation from the nse site of all 50 shares , then calculate by : 1000 x ( sum of all the free float of 50 nifty stocks ) then divided by 2.06 trillion( market capitalisation of nifty in 95 ). i did not get the results close to 7500 or 8000 of nifty value ,

    i even tried taking the weighted float :
    1000 x ( sum of all the free float of 50 nifty stocks ) then divided by 2.06 trillion( market capitalisation of nifty in 95 ). i did not get the results close to 7500 or 8000 of nifty value .


    ANY ADVISE

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