Introduction to the SENSEX Index Example for Free

BSE is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India.The Exchange has a nation-wide reach with a presence in 417 cities and towns of India.The Exchange’s role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. The BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The Sensex is regarded as the pulse of the domestic stock markets in India. It consists of the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. These companies account for around fifty per cent of the market capitalisation of the BSE. The base value of the sensex is 100 on April 1, 1979, and the base year of BSE-SENSEX is 1978-79. Earlier an Association of Persons (AOP).The Exchange is professionally managed under the overall direction of the Board of Directors.The Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange.In terms of organisation structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broad-based.The day-to-dayoperations of the Exchange are managed by the Managing Director and a management team of professionals. Analysis of sensex How is sensex index calculated ? SENSEX, first compiled in 1986 was calculated on a “Market Capitalization-Weighted” methodology of 30 component stocks representing a sample of large, well-established and financially sound companies.These companies account for around one-fifth of the market capitalization of the BSE(indices). The base year of SENSEX is 1978-79(April.1 1979 = 100). The index is widely reported in both domestic and international markets through print as well as electronic media. SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. From September 2003, the SENSEX is calculated on a free-float marke capitalization methodology. The “free-float Market Capitalization-Weighted” methodology is a widely followed index construction methodology on which majority of global equity benchmarks are based. Market cap or market capitalization is simply the worth of a company in terms of it’s shares! To put it in a simple way, if you were to buy all the shares of a particular company, what is the amount you would have to pay? That amount is called the “market capitalization”!so it’s expressn can b.. Market cap = (current share price)X(number of shares issued by the company) Now, only the “open market” shares that are free for trading by anyone, are called the “free-float” shares.A simple way to understand the “free-float market cap” would be, the total cost of buying all the shares in the open market!BSE determines a free-float factor depending on how many shares are open in the total,then free-float market capitalization can be expressed as free-float Market cap= (free float factor)X(Market cap of the company) Now by adding free-float market cap of all the 30 companies listed and making it relative to sensex base, i.e, Sensex = 100X(free-float market cap1)/(free-float market cap of base year-1978-79) What are prerequisites for a company to be listed ? Some of the requirements are as under :- [I] Minimum Listing Requirements for new companies The following revised eligibility criteria for listing of companies on the Exchange, through Initial Public Offerings (IPOs) & Follow-on Public Offerings (FPOs), effective August 1, 2006. ELIGIBILITY CRITERIA FOR IPOs/FPOs 1. Companies have been classified as large cap companies and small cap companies. A large cap company is a company with a minimum issue size of Rs. 10 crores and market capitalization of not less than Rs. 25 crores. A small cap company is a company other than a large cap company. 1. In respect of Large Cap Companies 1. The minimum post-issue paid-up capital of the applicant company (hereinafter referred to as “the Company”) shall be Rs. 3 crores; and 2. The minimum issue size shall be Rs. 10 crores; and 3. The minimum market capitalization of the Company shall be Rs. 25 crores (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price). 2. In respect of Small Cap Companies 1. The minimum post-issue paid-up capital of the Company shall be Rs. 3 crores; and 2. The minimum issue size shall be Rs. 3 crores; and 3. The minimum market capitalization of the Company shall be Rs. 5 crores (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price); and 4. The minimum income/turnover of the Company should be Rs. 3 crores in each of the preceding three 12-months period; and 5. The minimum number of public shareholders after the issue shall be 1000. 6. A due diligence study may be conducted by an independent team of Chartered Accountants or Merchant Bankers appointed by the Exchange, the cost of which will be borne by the company. The requirement of a due diligence study may be waived if a financial institution or a scheduled commercial bank has appraised the project in the preceding 12 months. 2. For all companies : 1. In respect of the requirement of paid-up capital and market capitalisation, the issuers shall be required to include in the disclaimer clause forming a part of the offer document that in the event of the market capitalisation (product of issue price and the post issue number of shares) requirement of the Exchange not being met, the securities of the issuer would not be listed on the Exchange. 2. The applicant, promoters and/or group companies, should not be in default in compliance of the listing agreement. 3. The above eligibility criteria would be in addition to the conditions prescribed under SEBI (Disclosure and Investor Protection) Guidelines, 2000. [II] Minimum Listing Requirements for companies listed on other stock exchanges The Governing Board of the Exchange at its meeting held on 6th August, 2002 amended the direct listing norms for companies listed on other Stock Exchange(s) and seeking listing at BSE. These norms are applicable with immediate effect. 1. The company should have minimum issued and paid up equity capital of Rs. 3 crores. 2. The Company should have profit making track record for last three years. The revenues/profits arising out of extra ordinary items or income from any source of non-recurring nature should be excluded while calculating distributable profits. 3. Minimum networth of Rs. 20 crores (networth includes Equity capital and free reserves excluding revaluation reserves). 4. Minimum market capitalisation of the listed capital should be at least two times of the paid up capital. 5. The company should have a dividend paying track record for the last 3 consecutive years and the minimum dividend should be at least 10%. 6. Minimum 25% of the company’s issued capital should be with Non-Promoters shareholders as per Clause 35 of the Listing Agreement. Out of above Non Promoter holding no single shareholder should hold more than 0.5% of the paid-up capital of the company individually or jointly with others except in case of Banks/Financial Institutions/Foreign Institutional Investors/Overseas Corporate Bodies and Non-Resident Indians. 7. The company should have at least two years listing record with any of the Regional Stock Exchange. 8. The company should sign an agreement with CDSL & NSDL for demat trading. [III] Minimum Requirements for companies delisted by BSE seeking relisting of the Exchange The companies delisted by the Exchange and seeking relisting are required to make a fresh public offer and comply with the prevailing SEBI’s and BSE’s guidelines regarding initial public offerings. How do companies get listed on the stock market ? Here is how BSE lists companies which satisfy criterion,more or less same procedure is fallowed by other stock exchanges. Bombay Exchange has a separate Listing Department to grant approval for listing of securities of companies in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956, Guidelines issued by SEBI and Rules, Bye-laws and Regulations of the Exchange. A company intending to have its securities listed on any Exchange has to comply with the listing requirements prescribed by the Exchange and regulating bodies. IV Permission to use the name of the Exchange in an Issuer Company’s prospectus V Submission of Letter of Application VI Allotment of Securities VII Trading Permission VIII Requirement of 1% Security IX Payment of Listing Fees X Compliance with Listing Agreement XI Cash Management Services (CMS) – Collection of Listing Fees [IV] Permission to use the name of the Exchange(for BSE) in an Issuer Company’s prospectus The Exchange follows a procedure in terms of which companies desiring to list their securities offered through public issues are required to obtain its prior permission to use the name of the Exchange in their prospectus or offer for sale documents before filing the same with the concerned office of the Registrar of Companies. The Exchange has since last three years formed a “Listing Committee” to analyse draft prospectus/offer documents of the companies in respect of their forthcoming public issues of securities and decide upon the matter of granting them permission to use the name of “Bombay Stock Exchange Limited” in their prospectus/offer documents. The committee evaluates the promoters, company, project and several other factors before taking decision in this regard. List [V] Submission of Letter of Application As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on the Exchange is required to submit a Letter of Application to all the Stock Exchanges where it proposes to have its securities listed before filing the prospectus with the Registrar of Companies. List [VI] Allotment of Securities As per Listing Agreement, a company is required to complete allotment of securities offered to the public within 30 days of the date of closure of the subscription list and approach the Regional Stock Exchange, i.e. Stock Exchange nearest to its Registered Office for approval of the basis of allotment. In case of Book Building issue, Allotment shall be made not later than 15 days from the closure of the issue failing which interest at the rate of 15% shall be paid to the investors. List [VII] Trading Permission As per Securities and Exchange Board of India Guidelines, the issuer company should complete the formalities for trading at all the Stock Exchanges where the securities are to be listed within 7 working days of finalisation of Basis of Allotment. A company should scrupulously adhere to the time limit for allotment of all securities and dispatch of Allotment Letters/Share Certificates and Refund Orders and for obtaining the listing permissions of all the Exchanges whose names are stated in its prospectus or offer documents. In the event of listing permission to a company being denied by any Stock Exchange where it had applied for listing of its securities, it cannot proceed with the allotment of shares. However, the company may file an appeal before the Securities and Exchange Board of India under Section 22 of the Securities Contracts (Regulation) Act, 1956. List [VIII] Requirement of 1% Security The companies making public/rights issues are required to deposit 1% of issue amount with the Regional Stock Exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving the complaints of investors regarding delay in sending refund orders/share certificates, non-payment of commission to underwriters, brokers, etc. List [IX] Payment of Listing Fees All companies listed on the Exchange have to pay Annual Listing Fees by the 30th April of every financial year to the Exchange as per the Schedule of Listing Fees prescribed from time to time. The schedule of listing fees for the year 2007-2008, prescribed by the Governing Board of the Exchange is given hereunder : SCHEDULE OF LISTING FEES FOR THE YEAR 2007-2008 Sr. No. Particulars Amount (Rs.) 1 Initial Listing Fees 20,000 2 Annual Listing Fees (i) Companies with paid-up capital* upto Rs. 5 crores-10,000 (ii) AboveRs. 5 crores and upto Rs. 10 crores-15,000 (iii) Above Rs. 10 crores and upto Rs. 20 crores-30,000 3 Companies which have a listed capital* of more than Rs. 20 crores will pay additional fee of Rs. 750/- for every increase of Rs. 1 crores or part thereof. 4 In case of debenture capital (not convertible into equity shares) of companies, the fees will be charged @ 25% of the fees payable as per the above mentioned scales. *includes equity shares, preference shares, fully convertible debentures, partly convertible debenture capital and any other security which will be converted into equity shares. Kindly Note the last date for payment of listing fee for the year 2007-2008 is April 30, 2007. Failure to pay the listing fee(for the equity and/or debt segment) before the due date i.e. April 30, 2007 will attract imposition of interest @ 12% per annum w.e.f. May 1, 2007. List [X] Compliance with Listing Agreement The companies desirous of getting their securities listed are required to enter into an agreement with the Exchange called the Listing Agreement and they are required to make certain disclosures and perform certain acts. As such, the agreement is of great importance and is executed under the common seal of a company. Under the Listing Agreement, a company undertakes, amongst other things, to provide facilities for prompt transfer, registration, sub-division and consolidation of securities; to give proper notice of closure of transfer books and record dates, to forward copies of unabridged Annual Reports and Balance Sheets to the shareholders, to file Distribution Schedule with the Exchange annually; to furnish financial results on a quarterly basis; intimate promptly to the Exchange the happenings which are likely to materially affect the financial performance of the Company and its stock prices, to comply with the conditions of Corporate Governance, etc. The Listing Department of the Exchange monitors the compliance of the companies with the provisions of the Listing Agreement, especially with regard to timely payment of annual listing fees, submission of quarterly results, requirement of minimum number of shareholders, etc. and takes penal action against the defaulting companies. List [XI] Cash Management Services (CMS) – Collection of Listing Fees As a further step towards simplifying the system of payment of listing fees, the Exchange has entered into an arrangement with HDFC Bank for collection of listing fees, from 141 locations, situated all over India.Details of the HDFC Bank branches, are available on our website site as well as on the HDFC Bank website The above facility is being provided free of cost to the Companies. Companies intending to utilise the above facility for payment of listing fee would be required to furnish the information, (mentioned below) in the Cash Management Cash Deposit Slip. These slips would be available at all the HDFC Bank centres. S.No HEAD INFORMATION TO BE PROVIDED 1. Client Name Bombay Stock Exchange Limited 2. Client Code BSELIST 3. Cheque No. mention the cheque No &date 4. Date date on which payment is being deposited with the bank. 5. Drawer state the name of the company and the company code No.The last digits mentioned in the Ref. No. on the Bill is the company code No.e.g If the Ref. No in the Bill is mentioned as : Listing/Alf-Bill/2004-2005/4488, then the code No of that company is 4488 6. Drawee Bank state the bank on which cheque is drawn 7. Drawn on Location Mention the location of the drawee bank. 8. Pickup Location Not applicable 9. No. of Insts Not applicable The Cheque should be drawn in favour of Bombay Stock Exchange Limited , and should be payable, locally.Companies are requested to mention in the deposit slip, the financial year(s) for which listing fee is being paid. Payment made through any other slips would not be considered. The above slips will have to be filled in quadruplicate. One acknowledged copy would be provided to the depositor by the HDFC Bank. Development of sensex in last year 1000, July 25, 1990 – On July 25, 1990, the Sensex touched the four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results 2000, January 15, 1992 – On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh 3000, February 29, 1992 – On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by Manmohan Singh. 4000, March 30, 1992 – On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling. 5000, October 11, 1999 – On October 8, 1999, the Sensex crossed the 5,000-mark as the Bharatiya Janata Party-led coalition won the majority in the 13th Lok Sabha election. 6000, February 11, 2000 – On February 11, 2000, the information technology boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006. 7000, June 21, 2005 – On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capital and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time. 8000, September 8, 2005 – On September 8, 2005, the Bombay Stock Exchange’s benchmark 30-share index – the Sensex – crossed the 8000 level following brisk buying by foreign and domestic funds in early trading. 9000, December 9, 2005 – The Sensex on November 28, 2005 crossed 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors. 10,000, February 7, 2006 – The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10,000-mark on February 7, 2006. 11,000, March 27, 2006 – The Sensex on March 21, 2006 crossed 11,000 and touched a peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points. 12,000, April 20, 2006 – The Sensex on April 20, 2006 crossed 12,000 and touched a peak of 12,004 points during mid-session at the Bombay Stock Exchange for the first time. 13,000, October 30, 2006 – The Sensex on October 30, 2006 crossed 13,000 for the first time. It touched a peak of 13,039.36 and finally closed at 13,024.26. 14000, December 5, 2006 – The Sensex on December 5, 2006 crossed 14,000. 15,000, July 6, 2007 – The Sensex on July 6, 2007 crossed 15,000 mark. 16,000, September 19, 2007 – The Sensex on September 19, 2007 crossed the 16,000 mark. 17,000, September 26, 2007 – The Sensex on September 26, 2007 crossed the 17,000 mark for the first time. 18,000, October 9, 2007 – The Sensex on October 9, 2007 crossed the 18,000 mark for the first time. 19,000, October 15, 2007 – The Sensex on October 15, 2007 crossed the 19,000 mark for the first time. 20,000, October 29, 2007 – The Sensex on October 29, 2007 crossed the 20,000 mark for the first time. 21,000, Jan 08, 2008 – The Sensex on January 8, 2008 touched all time peak of 21078 before closing at 20873.[3] 13,000, October 30, 2006 – The Sensex on October 30, 2006 crossed 13,000 and still riding high at the Bombay Stock Exchange for the first time. It took 135 days to reach 13,000 from 12,000. And 124 days to reach 13,000 from 12,500. On October 30, 2006 it touched a peak of 13,039.36 & closed at 13,024.26. 14,000, December 5, 2006 – The Sensex on December 5, 2006 crossed 14,000 and touched a peak of 14028 at 9.58AM(IST) while opening for the day December 5, 2006. 15,000, July 6, 2007- The Sensex on July 6, 2007 crossed another milestone and reached a magic figure of 15,000. it took almost 7 month and 1 day to touch such a historic milestone. Coincidentally, Sachin Tendulkar achieved the same mark (15000 runs in international cricket) around the same time. (A refrain at that time was, “Sachin, make runs, so that the Sensex rises too!”) The following diagram shows the growth of earning per share from 1998 to 2010. The Bombay Stock Exchange (BSE) Sensex grew by 249 percent over the last 10 years, while the Shanghai Stock Exchange (SSE) Composite Index managed 140 percent growth. This is more remarkable given the Shanghai market has the advantage of a fixed population access; Chinese nationals can only invest in the Shanghai or Shenzhen exchanges and require special permission to acquire stocks from overseas. Indians meanwhile are free to invest where they choose, however increasing amounts of foreign capital and returning Indian investment are now flowing back to India (the Shanghai Stock Exchange places limitations on foreign investment with a only 79 foreign institutions currently able to buy and sell A (locally priced) shares). The BSE traces its roots back to 1830, with its primary trading index, the Sensex, being first compiled in 1986 with a base level of 100. The BSE is now the largest exchange in South Asia and the 12th largest globally with an estimated market capitalization of US$1.03 trillion in June 2009. There are over 4,o00 listed companies on the exchange. In contrast, the SSE was only reformed in 1990 and lists some 900 companies. It is the sixth largest exchange in the world with a market capitalization of US$2.07 trillion, but is dominated by government-owned companies and is not fully open to foreign investors. Shanghai’s primary index, the SSE Composite IX was formed in 1991 with a base value of 100. The Indian industries were greatly effected by the recession of the year 2010. Indian Economy, however just felt the blow of the global economic recession and the real economic growth have seen a sharp fall followed by the lower exports, capital outflow and corporate restructuring. It is expected that the global economies continue to stay strong in the short-term as the effect of stimulus is still strong and the tax cuts are working. India’s Economic Outlook Projection 2007 2008 2009 2010 GDP Growth 9.40% 7.30% 7.60% 8.30% CPI 6.40% 9.30% 5.50% 4.90% Year 2009 has started on the gloomy note, however the trend reversed from the first quarter of the year, financial markets posted strong gains fueled by huge amount of capital inflows which was set-aside during the economic downturn in search of a higher yield. In order to keep the economic growth during the time of worst recession, Federal authorities in India has announced the stimulus packages to prop-up the economic growth. To finance the stimulus packages, Indian Government has raised over $100 billion over the last four quarters in a way to finance the stimulus package. Country’s Public debt, according to the latest data has zoomed to over 50% of the total GDP and India’s Central bank, Reserve Bank of India has started printing new currency notes

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