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 India and has acquired a unique place in the collective consciousness of investors. The index is widely used to measure the performance of the Indian stock markets. SENSEX is considered to be the pulse of the Indian stock markets as it represents the underlying universe of listed stocks at The Stock Exchange, Mumbai. Further, as the oldest index of the Indian Stock market, it provides time series data over a fairly long period of time (since 1978-79).


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.


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.


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.


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.


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.


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.


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.

Management & Business Quiz

1. What psychological methodology does NLP stand for? Neuro-Linguistic Programming
2. David McLelland's motivational theory identified three principal motivational needs which he said each of us possesses to varying degrees, and which characterise our motivational behaviour; what are these three motivational needs? Achievement (n-ach), the need to achieve things; Authority/Power (n-pow), the need to have impact, influence and authority; and Affiliation (n-affil), the need for relationships, interaction and acceptance among other people (or words to similar effect as these definitions)
3. Which organisation produces the UK's ABC1C2 (etc) Social Grade Classifications Statistics? NRS Ltd (National Readership Survey)
4. What does the selling acronym AIDA stand for? Attention, Interest, Desire, Action
5. Who developed the 'Equity Theory' of job motivation in the 1960's? J Stacey Adams
6. What does the financial abbreviation P&L stand for? Profit and Loss (Profit and Loss Account)
7. Who developed the ten stages of corporate life cycle, starting with Courtship and Infancy and ending in Bureaucracy and Death? Dr Ichak Adizes
8. The Ansoff matrix correlates what two aspects of business development from the 'new' and 'existing' perspectives? Products and Markets
9. In selling and communications, what do 'open questions' generally achieve? Open questions gather information, improve understanding, and build rapport by encouraging the other person to talk and explain things, including how they feel about things.
10. Albert Mehrabian researched and published a now widely referenced set of statistics for the effectiveness of spoken communications; what three types of communication did he identify and what percentages for each did he attach to each type in terms of the percentage of meaning (or understanding) that each communication type conveyed from person to person in his study? Mehrabian's research stated that: 7% of meaning conveyed is in the words that are spoken; 38% of meaning conveyed is in the way that the words are said (paralinguistic); and 55% of meaning conveyed is in facial expression.
11. In business accounts and financial reporting, expenses which change according to scale of performance or usage or demand are known as what? Variable Costs
12. What is the name of Ingham and Luft's model and theory which deals with hidden and open areas of knowledge about a person? The Johari Window
13. The '360 degree' appraisal method collects feedback from whom, about whom? A '360 Degree' feedback appraisal collects the views from people who work with the appraisee, about the appraisee, including subordinates, peers, upline managers; effectively anyone who comes into contact with the appraisee and who is happy to provide constructive feedback about the appraisee's strengths and areas for improvement
14. What are the four levels of learning evaluation defined in Donald Kirkpatrick's model? 1. Enjoyment; 2. Transfer of learning; 3. Application of learning; 4. Effect of application (or words to the same effect as these four definitions)
15. What is the correct ascending order of these human needs according to Maslow's Hierarchy of Needs: Esteem, Safety, Belongingness and Love, Self-Actualisation, Biological and Physiological? Biological and Physiological Needs (basic life needs - shelter, food, drink, sleep, etc); Safety Needs (security, protection, law, etc); Belongingness and Love Needs (family, affection, relationships, etc); Esteem Needs (achievement, status, responsibility, reputation, etc); Self-Actualisation (personal growth, self-fulfilment, etc)
16. What part of our brains typically handles process-type functions, according to brain theorists such as Katherine Benziger? Left Basal (left rear)
17. What does the accounting acronym FIFO mean? First In First Out (a convention for writing down the balance sheet value of assets of the same type - oldest are written-off first)
18. One of the most effective and efficient forms of marketing is abbreviated to the initials WOM; what is it? Word Of Mouth
19. Bloom's Taxonomy of Learning Domains divides learning development into three main aspects: Cognitive, Affective and Psychomotor; what might these three aspects of personal development more commonly be called? Knowledge, Attitude, Skills
20. Who wrote the Seven Habits of Highly Effective People? Dr Stephen Covey
21. The 'Big Five' personality dimensions, by which modern day psychologists believe every person's personality and behaviour tendencies can be measured are commonly abbreviated to the OCEAN acronym; what does OCEAN stand for? Openness to experience, Conscientiousness, Extraversion/introversion, Agreeableness, Neuroticism.
22. What are the four metaphorical terms used to describe products/services in Boston Matrix model according to market share and market maturity? Dog, Cash Cow, Problem Child and Star (or Rising Star)
23. The financial ratio which divides a company's 'liquid assets' by 'current liabilities' is known by what popular term? Acid Test (or 'Quick Ratio')
24. What three important things should be confirmed and understood before conducting a brainstorming ideas session? The purpose or aim of the exercise; a time limit; the fact that all ideas are welcome and to be respected (ie., sometimes the craziest-sounding ideas are the best ones).
25. What does the SWOT stand for in SWOT analysis? Strengths, Weaknesses, Opportunities, Threats
26. What are the 'Four Functional Types' within Carl Jung's theory? Thinking, Feeling, Sensation, Intuition
27. With what was the Kyoto Summit concerned? Global climate change (in other words, greenhouse gas emissions)
28. What are the four sequential stages of the 'conscious competence' learning model? 1. Unconscious Incompetence, 2. Conscious Incompetence, 3. Conscious Competence, 4. Unconscious Competence
29. What is the '1st Law of Cybernetics' (aka the 'Law of Requisite Variety')? "The unit within the system with the most behavioural responses available to it controls the system." (or words to that effect)
30. What are the four main 'Temperament' types called within David Keirsey's Temperaments personality theory? Artisan, Idealist, Guardian, Rational/Rationalist
31. According to the Tannenbaum and Schmidt theory relating to delegation and team development, what must be reduced in order for the team's area of freedom (and growth) to increase? The manager's use of authority
32. What does the financial term ROI stand for? Return On Investment
33. Whose experiential learning theory comprises the learning styles named: Concrete Experience (feeling); Abstract Conceptualization (thinking); Active Experimentation (doing); and Reflective Observation (watching)? David Kolb
34. Daniel Goleman was responsible for popularising and defining what management and behavioural concept in his eponymously titled (ie., the title is also the subject) 1995 book? Emotional Intelligence
35. What is psychometrics? The science of measuring (or testing) personality type (or mental abilities)
36. What is the management technique that is commonly abbreviated to MBWA? Management By Walking About (or Wandering Around) - the term is generally attributed to Tom Peters (In Search Of Excellence, 1982) although it was probably part of a new management ideology first pioneered by a few bright American companies as far back as the 1940's
37. Large size hand-writing generally indicates what characteristics in the personality of the writer? Extraverted or out-going nature
38. Since October 2004, UK employers must follow a minimum process of three-stages for handling disputes with employees, including disciplinary and grievance matters; what are the basic minimum three stages required? 1. Write a letter to the employee explaining the issue; 2. Have a meeting with the employee to discuss the issue; 3. Hold or offer an appeal meeting with the employee if required.
39. Douglas McGregor defined two main styles of management; what did he call them and how are each of the two styles typified? X-Theory (or Theory-X) which is authoritarian, autocratic and repressive; and Y-Theory (or Theory-Y) which is participative, delegating, and developmental (or words to similar effect as these two descriptions)
40. Bruce Tuckman's theory about team development uses what four sequential rhyming words to describe the four stages of a group's progression? Forming, Storming, Norming, Performing
41. What are Howard Gardner's seven (original) Multiple Intelligences? Linguistic (words and language), Logical-Mathematical (logic and numbers), Musical (music, sound, rhythm), Bodily-Kinesthetic (body movement control), Spatial-Visual (images and space), Interpersonal (other people's feelings), Intrapersonal (self-awareness)
42. According to Herzberg's motivational theory, which of these are 'hygiene needs' (or 'maintenance factors') and which are true 'motivators': work conditions, salary, achievement, advancement, work itself, responsibility, company car, status, recognition, and personal growth? Of the examples listed, hygiene needs are: work conditions, salary, company car, status. True motivators in the list are achievement, recognition, work itself, responsibility, advancement, and personal growth.
43. What does VAK stand for in the learning styles theory? Visual, Auditory, Kinesthetic/Kinaesthetic (three different learning styles or methods - seeing, listening, doing)
44. What does the business acronym IPO stand for? Initial Public Offering, meaning the initial sale of privately owned equity (stock or shares) in a company via the issue of shares to the public and other investing institutions
45. What does the PEST stand for in PEST analysis? Political, Economical, Social, Technological
46. What do 'open questions' typically begin with? Open questions typically begin with Who, What, How, When, Where, and Why, (or for particularly capable or intelligent respondents, 'Tell me about...')
47. What visionary management thinker wrote The Age Of Unreason and The Empty Raincoat? Charles Handy
48. What are the names of the (nine) Belbin 'team roles'? Coordinator (was called 'Chairman'), Shaper, Plant, Monitor-Evaluator, Implementer (was called 'Company Worker'), Resource Investigator, Team Worker, Completer-Finisher, Specialist
49. In marketing, what are the The Four P's? Product, Price, Promotion, Place.
50. A lot of the traditional 20th century sales theory and training was influenced by the 1937 book 'How to Win Friends and Influence People'; who wrote it? Dale Carnegie.

Technical Analysis of Indian stock marke

Technical Analysis of Indian stock market
Trading Strategy
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 September 1, 2003. The "Free-float Market Capitalization" methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.

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.