Technical Analysis of Indian stock market
1 . BSE Sensex Index
2 . NSE S&P CNX Nifty 50 Index
3 . NSE Nifty Junior Index
4 . NSE CNX 100 Index
5 . NSE CNX Midcap Index
6 . NSE CNX IT Sector Index
1 . BSE Sensex Index
The BSE SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.
Technical Analysis of Indian stock market BSE Sensex Index
The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from
Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over the years become one of the most prominent brands in the country.
Technical Analysis of Indian stock market BSE Sensex Index
FAQ's
Q.1 What is SENSEX?
The SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-Weighted" index of 30 stocks representing a sample of large, well-established and financially sound companies. It is the oldest index in
Q.2 What are the objectives of SENSEX?
The SENSEX is the benchmark index of the Indian Capital Markets with wide acceptance among individual investors, institutional investors, foreign investors and fund managers. The objectives of the index are:
To measure market movements
Given its long history and its wide acceptance, no other index matches the SENSEX in reflecting market movements and sentiments. SENSEX is widely used to describe the mood in the Indian Stock markets.
Benchmark for funds performance
The inclusion of blue chip companies and the wide and balanced industry representation in the SENSEX makes it the ideal benchmark for fund managers to compare the performance of their funds.
For index based derivative products
Institutional investors, money managers and small investors all refer to the SENSEX for their specific purposes The SENSEX is in effect the proxy for the Indian stock markets. The country's first derivative product i.e. Index-Futures was launched on SENSEX.
Q.3 What are the criteria for selection and review of scrips for the SENSEX?
A. Quantitative Criteria:
1. Market Capitalization:
The scrip should figure in the top 100 companies listed by market capitalization. Also market capitalization of each scrip should be more than 0.5 % of the total market capitalization of the Index i.e. the minimum weight should be 0.5 %. Since the SENSEX is a market capitalization weighted index, this is one of the primary criteria for scrip selection. (Market Capitalization would be averaged for last six months)
2. Liquidity:
(i) Trading Frequency: The scrip should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like scrip suspension etc. (ii) Number of Trades: Number of Trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year. (iii) Value of Shares Traded: Value of Shares Traded: The scrip should be among the top 150 companies listed by average value of shares traded per day for the last one year.
3. Continuity:
Whenever the composition of the index is changed, the continuity of historical series of index values is re-established by correlating the value of the revised index to the old index (index before revision). The back calculation over the last one-year period is carried out and correlation of the revised index to the old index should not be less than 0.98. This ensures that the historical continuity of the index is maintained.
4. Industry Representation:
Scrip selection would take into account a balanced representation of the listed companies in the universe of BSE. The index companies should be leaders in their industry group.
5. Listed History:
The scrip should have a listing history of at least one year on BSE.
B. Qualitative Criteria:
Track Record:
In the opinion of the Index Committee, the company should have an acceptable track record.
Q.4 What is the beta of SENSEX scrips?
Beta measures the sensitivity of a scrip movement relative to movement in the benchmark index i.e. SENSEX. A Beta of one means that for every change of 1% in index, the scrip moves by 1%. Statistically Beta is defined as: Covariance (SENSEX, Stock )/ Variance(SENSEX)
Note: Covariance and variance are calculated from the Daily Returns data of the SENSEX and SENSEX scrips.
Q.5 How is SENSEX calculated?
SENSEX is calculated using a "Market Capitalization-Weighted" methodology. As per this methodology, the level of index at any point of time reflects the total market value of 30 component stocks relative to a base period. (The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company). An index of a set of a combined variables (such as price and number of shares) is commonly referred as a 'Composite Index' by statisticians. A single indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over time. It is much easier to graph a chart based on indexed values than one based on actual values.
The base period of SENSEX is 1978-79. The actual total market value of the stocks in the Index during the base period has been set equal to an indexed value of 100. This is often indicated by the notation 1978-79=100. The formula used to calculate the Index is fairly straightforward. However, the calculation of the adjustments to the Index (commonly called Index maintenance) is more complex.
The calculation of SENSEX involves dividing the total market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index maintenance adjustments. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds and disseminated in real time.
Q.6 How is the closing Index calculated?
The closing SENSEX is computed taking the weighted average of all the trades on SENSEX constituents in the last 15 minutes of trading session. If a SENSEX constituent has not traded in the last 15 minutes, the last traded price is taken for computation of the Index closure. If a SENSEX constituent has not traded at all in a day, then its last day's closing price is taken for computation of Index closure. The use of Index Closure Algorithm prevents any intentional manipulation of the closing index value.
Q.7 How is the routine maintenance of SENSEX carried out?
One of the important aspects of maintaining continuity with the past is to update the base year average. The base year value adjustment ensures that additional issue of capital and other corporate announcements like bonus etc. do not destroy the value of the index. The beauty of maintenance lies in the fact that adjustments for corporate actions in the Index should not per se affect the index values.
The Index Cell of the Exchange does the day-to-day maintenance of the index within the broad index policy framework set by the Index Committee. The Index Cell takes special care to ensure that SENSEX and all the other BSE indices maintain their benchmark properties by striking a delicate balance between high turnover in Index scrips and its representative character. The Index Committee of the Exchange has experts from different field of finance related to the capital markets. They include Academicians, Fund-managers from leading Mutual Funds, Finance - Journalists, Market Participants, Independent Governing Board members, and Exchange administration.
Q.8 How are adjustments for Bonus, Rights and newly issued Capital carried out in SENSEX?
The arithmetic calculation involved in calculating SENSEX is simple, but problem arises when one of the component stocks pays a bonus or issues rights shares. If no adjustments were made, a discontinuity would arise between the current value of the index and its previous value. The Index Cell of the Exchange periodically adjusts the base value to take care of such corporate announcements.
Adjustments for Rights Issues:
When a company, included in the compilation of the index, issues right shares, the market capitalisation of that company is increased by the number of additional shares issued based on the theoretical (ex-right) price. An offsetting or proportionate adjustment is then made to the Base Market Capitalisation (see ' Base Market Capitalisation Adjustment' below).
Adjustments for Bonus Issue:
When a company, included in the compilation of the index, issues bonus shares, the market capitalisation of that company does not undergo any change. Therefore, there is no change in the Base Market Capitalisation, only the 'number of shares' in the formula is updated.
Other Issues: Base Market Capitalisation Adjustment is required when new shares are issued by way of conversion of debentures, mergers, spin-offs etc. or when equity is reduced by way of buy-back of shares, corporate restructuring etc.
Base Market Capitalisation Adjustment: The formula for adjusting the Base Market Capitalisation is as follows:
New Base Market Capitalisation = Old Base Market Capitalisation X (New Market Capitalisation/Old Market Capitalisation)
To illustrate, suppose a company issues right shares which increases the market capitalisation of the shares of that company by say, Rs.100 crores. The existing Base Market Capitalisation (Old Base Market Capitalisation), say, is Rs.2450 crores and the aggregate market capitalisation of all the shares included in the index before the right issue is made is, say Rs.4781 crores. The "New Base Market Capitalisation " will then be: Rs.2501.24 crores = 2450 X (4781+100)/4781
This figure of 2501.24 will be used as the Base Market Capitalisation for calculating the index number from then onwards till the next base change becomes necessary.
Q.9 With what frequency is SENSEX calculation done?
During market hours, prices of the index scrips, at which trades are executed, are automatically used by the trading computer to calculate the SENSEX every 15 seconds and continuously updated on all trading workstations connected to the BSE trading computer in real time.
2 . NSE S&P CNX Nifty 50 Index
The NSE S&P CNX Nifty 50 index is a well diversified 50 stock index accounting for 24 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.
Technical Analysis of Indian stock market NSE S&P CNX Nifty 50 Index
NSE S&P CNX Nifty 50 is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is
The main features of the NSE S&P CNX Nifty 50 index are:
- The average total traded value for the last six months of all Nifty stocks is approximately 77% of the traded value of all stocks on the NSE
- Nifty stocks represent about 61% of the total market capitalisation as on
- Impact cost of the S&P CNX Nifty for a portfolio size of Rs.5 million is 0.10%
- S&P CNX Nifty is professionally maintained and is ideal for derivatives trading.
3 . NSE Nifty Junior Index
The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty Junior index. It may be useful to think of the S&P CNX Nifty and the CNX Nifty Junior as making up the 100 most liquid stocks in
As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, so they are the most liquid of the stocks excluded from the S&P CNX Nifty.
The maintenance of the S&P CNX Nifty and the CNX Nifty Junior are synchronised so that the two indexes will always be disjoint sets; i.e. a stock will never appear in both indexes at the same time. Hence it is always meaningful to pool the S&P CNX Nifty and the CNX Nifty Junior into a composite 100 stock index or portfolio.
The main features of the CNX Nifty Junior Index are:
#CNX Nifty Junior represents about 10% of the total market capitalisation as on
# The average traded value for the last six months of all Junior Nifty stocks is approximately 8% of the traded value of all stocks on the NSE .
# Impact cost for CNX Nifty Junior for a portfolio size of Rs.2.50 million is 0.30 %
4 . NSE CNX 100 Index
Method of Computation
CNX 100 is computed using market capitalisation weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value.
Base Date and Value
The CNX 100 Index has a base date of
Criteria for Selection of Constituent Stocks
CNX 100 index would comprise of the securities, which are constituents of S&P CNX Nifty, and CNX Nifty Junior. In other words this index is a combination of the S&P CNX Nifty and CNX Nifty Junior. Any changes i.e. inclusion and exclusion of securities in S&P CNX Nifty and CNX Nifty Junior would be automatically mirrored in this new index.
Index Maintenance
Index Maintenance plays a crucial role in ensuring stability of the Index as well as in meeting its objective of being a consistent benchmark of the equity markets.
IISL has constituted an Index Policy Committee, which is involved in policy and guidelines for managing the CNX Indices. The Index Maintenance Sub-committee takes all decisions on addition/ deletion of companies in any Index.
The maintenance of the S&P CNX Nifty and the CNX Nifty Junior are synchronised so that the two indices will always be disjoint sets; i.e. a stock will never appear in both indices at the same time. Hence it is always meaningful to pool the S&P CNX Nifty and the CNX Nifty Junior into a composite 100 stock index or portfolio. The index is reviewed every quarter and a four weeks notice is given to the market before making changes to the index set.
5 . NSE CNX Midcap Index
The medium capitalised segment of the stock market is being increasingly perceived as an attractive investment segment with high growth potential. The primary objective of the NSE CNX MidCap Index is to capture the movement and be a benchmark of the midcap segment of the market.
The main features of the NSE CNX Midcap Index are:
- NSE CNX Midcap Index represents about 77% of the total market capitalization of the Mid-Cap Universe and about 75% of the total traded value of the Mid-Cap Universe (Mid-Cap Universe is defined as stocks having average six months market capitalization between Rs.75 crores and Rs.750 crores).
- Industry weightages in the index dynamically reflect industry weightages in the market.
- Provide investors a broad based benchmark for comparing portfolio returns vis-�-vis market returns in the midcap segment.
6 . NSE CNX IT Sector Index
Information Technology (IT) industry has played a major role in the Indian economy during the last few years. A number of large, profitable Indian companies today belong to the IT sector and a great deal of investment interest is now focused on the IT sector. In order to have a good benchmark of the Indian IT sector, IISL developed the CNX IT sector index.
Companies in this index are those that have more than 50% of their turnover from IT related activities like software development, hardware manufacture, vending, support and maintenance. The index is a market capitalisation weighted index with its base period being December 1995 and the base date and base value being
NSE CNX IT Sector Index
CNX IT Index is an index comprised of the most liquid and large capitalization IT stocks, traded on the NSE, engaged in the business of software or hardware. CNX IT provides investors and market intermediaries with an appropriate benchmark that captures the performance of the IT segment of the market. The index is a market capitalization weighted index with base date being
The Base Value of the index is being revised from 1000 to 100 w.e.f.
Method of Computation
The CNX IT Index is calculated using the market capitalisation weighted aggregate method.
Selection Criteria
- Market Capitalisation
The influence of each company on the index is directly proportional to its market value. Therefore, a company�s rank based on the average market capitalisation over a 6 month period is an important consideration for its selection in the CNX IT Index.
- Trading Interest
The companies considered for inclusion must rank among the highest in the IT sector in terms of annual trading turnover and must have demonstrated a high level of trading frequency in the previous 6 month period.
- Others
A company which comes out with a IPO will be eligible for inclusion in the index, if it fulfills the normal eligiblity criteria for the index for a 3 month period instead of a 6 month period.
