The document discusses stock market indices in India. It explains that indices like Sensex and Nifty track the performance of groups of stocks to indicate the overall stock market performance. Sensex tracks 30 stocks on the BSE, using the free float market capitalization method to calculate the index value. Similarly, Nifty tracks 50 stocks on the NSE, also using free float market capitalization. The document provides examples to demonstrate how the index values are calculated based on the selected stocks' free float market capitalizations.

1. Presented by :
Priyanka Kumari
Mansih Tiwari

2. Introduction
Stock Exchange
stock market index
Criteria for selecting stocks to calculate index
Why do we need indices?
Understanding sensex
Calculation of sensex
Understanding nifty
Calculation of nifty
Conclusion

3. Stock exchange
A stock exchange can be defined as :-
 Centralised market for buying and selling of stocks where the price is
determined through supply – demand mechanism .
 The ministry of finance , the security exchange board of India ( SEBI ) and the
Reserve Bank of India (RBI) are three regulatory authorities governing Indian
capital market.
 SEBI is the apex body governing the Indian stock exchanges.

4.  In stock exchanges continuous trading in securities takes place and trade occurs
at different prices, as a result even on a single day prices of securities may
fluctuate .
 On any trading day four prices can easily be identififed , namely opening price ,
closing price , the highest price of the day and lowest price of the day .
 The prices can move in a cyclical increasing and decreasing fashion

5. WHAT ARE STOCK INDICES
From among the stocks listed on the exchange, some similar stocks are selected are
grouped together to form an index.
This classification may be on the basis of the industry the companies belong to, the
size of the company, market capitalisation or some other basis.
For example : The BSE Sensex is an index consisting of 30 stocks, similarly, the
NSE Sensex is an index consisting of 50 stocks.

6. WHY DO WE NEED INDICES

7.  A Stock Market Index is a method of measuring a section of the stock market. They are the barometers of the
stock market. They mirror the stock market behaviour.
 With some 7000 companies listed on BSE, it is not possible to look at the prices of every stock to find out
whether the market movement is upward or downward.
 The indices give a broad outline of the market movement and represent the market.
 Some of the stock market indices are :
Sensex, NIFTY.
An index is basically an indicator which gives us a general idea about stocks going
up or down.

8. A stock market indices is created by selecting a group of stocks that are capable of representing the
whole market or a specified sector or segment of the market.
Any change in the price of the stocks leads to a change in the index value
There is usually a provision for giving proper weights to different stocks on the basis of their importance
in the economy.
A stock market index act as the indicator of the performance of the economy or a sector of the economy.

9. LISTING HISTORY : the company should have a listing history on bse for atleast one year.
MARKET CAPITALIZATION : company should be one among 100 market capitalisation of bse and each
company should have a more than 0.5% of total capitalisation of bse index.
FREQUENCY OF TRADING : the company stocks should be traded on each and every trading day for last one
year.
INDUSTRIAL REPRESENTATION : company should be a leader in the industry it represents

10. Free Float Market
Capitalization
(method adopted to
calculate now)
Weighted Average
Market
Capitalization
(old method)
Some other methods
 Full market capitalization method
 Modified capitalization method
 Equal weighing

11. Calculate the total free float market capitalization of
the at any point of time .
This is a simple sum of the free float market
capitalization of the stocks that are part of Sensex.
Check the base value of the index.
This is the total market cap in the index when it was formed
initially. Sensex was formed in 1986 , yet its base year is 1978-1979 .
Divide the total free – float market capitalization with the base
market capitalization value and multiply by the base index value.
Incase of sensex the base index is 100.
Steps to
calculate index

13. Free float Market Capitalization
First we need to understand what is Market Capitalization
 It is defined as proportion of total shares issued by the company that are readily available for trading in
the market .
 In india mostly free float market capitalization method is used & is also used by two famous NSE &BSE.
 It generally excludes the promoters holding , government holding etc.
 In simple free float market capitalization is the total proportion of total shares available for trading to
general public.
 These shares are called the free float shares and are available for trading by anyone.

14. Market Capitalization is the aggregate valuation of company based on its current
share price and total number of outstanding shares .
Example :- if a company has 1000 outstanding share and current market price of each
share is Rs 10
=>Market capitalization = Number of outstanding share * Current share price
=>1000 *10 = 10000
Stocks of companies are of 3 types :-
 Stock with market cap Rs 10000 crore or more ==Large cap stocks
 Stocks with market cap Rs 2 crore to 10 crore ==Mid cap stocks
 Stock with less than 2 crore market cap ==Small cap stocks

15. Company XYZ Ltd issues 1000 shares, out of which 200 shares held by government, 500 shares by
directors of the company and remaining 300 shares are available in the open market for trading.
Market price of share is Rs 10.
According to question :-
Total shares = 1000
Shares held by Government = 200
Shares held by directors = 500
Shares available in the Open Market = 300
Market price of share = 10

16. Here total market capitalisation of the company is 1000 * Rs10 = Rs 10000
&
Free float market capitalisation of the company is 300* Rs10 = Rs 3000

17. What is sensex?
Full form : Senstivity Index : represents the strength of the market
 Sensex is primarily an index reflecting the Bombay Stock Exchange (BSE) .
 The sensex comprises of 30 prominent stocks derived from all key sectors
which are traded actively in the exchange .
Thus , the sensex truely reflects the movement of Indian stock markets .
 The base year used here for calculation is 1978-1979. Base value is 100.

18. SENSEX = (sum of free float market cap of 30 major companies of BSE) X
Index value in 1978-79 / Market cap value in 1978-79
Stocks Open Stocks Market Issued Stocks Market Capitalization
X 500 100 50000
Y 1000 50 50000
Sum of free float market cap of company X and company Y is
50000+50000 = Rs100000 Assume market cap during 1978-79 is 25000
Now Apply formula;
100000*100/25000 = 400

19. The term Nifty originated from two words “National” and “Fifty” .
Nifty is a major stock index introduced by the National Stock Exchange.
Nifty consists of 50 heavyweight stocks belong to various sectors, that are
actively traded on the NSE .
India Index Services and Products Ltd. (IISL) does the management of the
Nifty 50 index

20. The Nifty is a market capitalization weighted index based on this Free Float Method.
The same method is used to calculate NSE nifty but includes two major changes.
•Base year is 1995 and base value (index value) is 1000
•Nifty represents stocks of 50 major companies of NSE.
Formula for NIFTY
NIFTY = (Sum of free flow market cap of 50 major stocks of NSE) * Index value in 1995 / market cap
value in 1995.

21. CALCULATION OF NIFTY
Example :- Say NIFTY comprises only 2 stocks – ‘A’ and ‘B’
Assume A has 1000 shares. Promoters hold 200 and rest 800 are available for active trading and hence are
free floating. B has 2000 shares, its promoters hold 1000 shares and rest 1000 are free-floating.
Say price of A is Rs. 10 and that of B is Rs. 20.
Solution :
A’s total market capitalisation [ 1000* Rs. 10 ] = Rs. 10000
A’s Free Float Market Cap [ 800 * Rs. 10 ] = Rs. 8000
Similarly, B’s total market capitalisation [ 2000 * Rs. 20] = Rs. 40000
B’s Free Float Market Cap [ 1000 * Rs. 20] = Rs. 20000

22. Therefore, total free float market capitalisation of A and B = Rs. (8000 +20000)
= Rs. 28000
Index Value
NIFTY = (Sum of free flow market cap of 50 major stocks of NSE) * Index value in 1995 /
market cap value in 1995
Assume Market capitalisation during 1995 was Rs. 5000
Then NIFTY = 28000 *1000 / 5000
= 5600.

23. On the basis of the index i.e SENSEX for BSE and NIFTY for NSE, investors
decide what to buy and where to invest their money by following the rising and
falling trends of the market indices.
So, if anyone is planning on investing their money in stock market, the SENSEX and
NIFTY would be the new best friends. Because without the knowledge of index the
investment would not be the fruitful one.
CONCLUSION