UNDERSTANDING THE INDEX

• Index is an indicator or measure of something and in

finance it typically refers to a statical measure of
change in a securities market
STOCK MARKET INDEX:
 stock index measure of value of section of stock market.
Prices of selected stocks are witted averaged.
It is tool used by investors and financial manager to
describe the market and to compare the return on specified
investment.
USE OF INDEX
• It is a tool for market behavior. That means index behavior
is a barometer for the performance of the companies.
• If the index shows upward trend so the companies
performing well or vise versa.
• As a bench mark for portfolio performance
SENSEX
• Sensex introduced by BSE.
• Base value Sensex is 100 and the base year is 1978 to
1979.
• In Sensex index points are calculated based on free float
market capitalization.
NIFTY
• NIFTY introduced by NSE
• NIFTY is derived from national and fifty
• NIFTY includes 50 company's
• Base value of index set at 1000
• Base year 1995
FREE FLOAT MARKET
CAPITALIZATION
• Free float means the shares are freely offered to general
public
• Free float capitalization means total market value of
shares that are offered to general public .
example
• Company A
Total shares 1000 shares
Promoters holding 200 shares
Public issue 800 shares
Market price rupees 120
Total market capitalization rupees 120000
Free float market capitalization rupees 96000
COMPANY B
• Total shares 2000
• Promoters shares 1000
• Public holding shares 1000
• Market price Rs 200
• Total market capitalization 400000 rupees
• FFMC is rupees 200000
Calculation of FFMC of A&B
• FFMC (A&B) =96000+200000
• =296000
CALCULATION OF INDEX
• suppose at the time MC of the stock was say 60000
• Index today =(296000/60000)100
• Index =493
• This is how Sensex is calculated
• The factor 100/60000 is called as index divisor