Presentation on SENSEX

Presenters:


 Himanshu Jindal
 Sensex and Shares
 What is stock?
 SHARES,EQUITY ALL ARE VARIOUS NAMES
GIVEN FOR “STOCK”
 Stock is a share in the ownership of
company. Technically, u will be having a
right in company’s assets and earnings.


 As a owner, u will be getting a share in

profits also. These are termed as “
DIVIDENDS”
 STOCK “MARKETING”
1. It is a place where dealing of share in the
company occurs on day to day basis.
2. There are 1100 exchanges where share
Sales/Purchase occurs. Like
BSE(Bombay stock
Exchange),NSE(National Stock
Exchange),e.t.c.
3. There are approximately 12000 Securities
listed in various exchanges whose
share trading occurs daily.



 Every stock is represented by a certificate

“ stock certificate or share certificate”.
Now, materialisation has become into
Dematerialisation(DEMAT) then turned
into Rematerialisation(REMAT)

As a s h a re h o ld e r, u n e e d n o t s a y t h e d a y-
t o - d a y ru n n in g o f t h e b u s in e s s .
Ma n a g e m e n t h a s t o wo rk fo r t h e
m a xim iza t io n o f va lu e o f s h a re h o ld e rs , if
it d id n o t d o s o , t h e y c a n b e re m o ve d b y
“ vo t in g ” in t h e AGMs .
 SHARES WILL BE HAVING LIMITED
LIABILITY AND SO NOBODY WILL TOUCH
UR PERSONAL ASSETS IF SOMETHING
HAPPENS TO THE COMPANY.


 U CAN GET THESE SHARES EITHER FROM

PRIMARY OR FROM SECONDARY
MARKETS ( BSE AND NSE)



 SENSEX-WHAT DOES IT
MEAN?
 Sensitivity Index
 We can not study each and every stock in
the market and hence we need an
indicator which shows the performance
of all stocks in the market.
 This indicator has to be formed from
different sectors of company based on
some criteria which is most reliable and
which can be assumed for the whole
market.
 SEBI(Security exchange Board Of India) is
the monitory agency of Sensex.

SENSEX-WHAT DOES IT MEAN?
 SENSEX is the index which represents the
trend of the stock market ( BSE) by
taking 30 benchmark companies.


 NIFTY INDEX is the benchmark index for

NSE by taking 50 companies into
consideration.



 Calculation Of
Sensex
 SENSEX-CALCULATION?
 SENSEX has been calculated since 1986.
 Initially it was calculated based on the
Total Market Capitalization
methodology and the methodology was
changed in 2003 to Free Float Market
Capitalization.

 These days, the SENSEX is based on the
Free Floating Market cap of 30 STOCKS.

 Stocks traded on the BSE relative to the
base value which is 100(1978-79) and
it is calculated for every 15 seconds.

 BSE-30 Companies
Oriental Bank National Aluminium Co Ltd
Mahindra & Mahindra HPCL
SAIL Tata Tea
Tata Motors Hero Honda
ONGC Tata Power
Shipping Corp Of India Ltd Sun Pharma
Tata Iron & Steel Co Ltd Ranbaxy
BHEL ICICI Bank
IPCL SBI Bank
Grasim Glaxo
GAIL Indian Hotels
Reliance Industries BPCL
ABB MAHINDRA Satyam
Bajaj Auto ACC
Tata Chemicals Limited Gujarat Ambuja
HOW SENSEX IS CALCULATED?
The formula for calculating the Sensex is:



SENSEX =
 Sum of FFMC of 30 benchmark stocks*100
 Base Value of FFMC(1978-79)


FFMC = MARKET CAPITALISATION*FF FACTOR

 Ø
Ø

Ø MARKET CAPITALSIATION =
Ø Market price of the company * No. of shares available in the company
Ø

FF FACTOR= No. of shares available for Trading

Total no. of shares of company
Ø Free-float market capitalization
takes into consideration only those
shares issued by the company that
are readily available for trading in
the market.
Ø
Ø
Ø It excludes promoters' holding,
government holding, strategic
holding and other locked-in
shares that will not come to the
market for trading in the normal
course.
For Example:
 Assume SENSEX has only 2 stocks namely
SBI and RELIANCE. Total shares in SBI
are 500 out of which 200 are held by
Government and only 300 are available
for public trading. RELIANCE has 1000
shares out of which 500 are held by
promoters and 500 are available for
trading. Assume price of SBI Stock is
Rs.100 and Reliance is Rs.200.
 Then "free-Floating Market Cap" of these 2
companies =
(300*100+500*200) = 30000+100000 = Rs.
130000
Assume Market Cap during the year 1978-79
was Rs.25000
Then SENSEX = 130000*100/25000 = 520.
The methodology in the example is exactly
followed to calculate the SENSEX, only
difference being the inclusion of 30 stocks.
 EARNINGS PER SHARE
 It will give u an idea that for every
share that u hold, how much
earnings u r going to receive.


 EPS = Ne t Ea rn in g s
Ou t s t a n d in g Sh a re s


For Ex:
 Net earnings = Rs 1,00,000
 Outstanding shares = Rs. 10000


 EPS = Rs. 10..which means that for

every one share u held in the company, u
get Rs. 10/- as profit.
 SENSEX EPS


EPS is calculated for SENSEX as well so
that we can have a better
understanding about the market.
All you need for this calculation is EPS
of all the 30 SENSEX stocks along with
their Free Float Adjustment Factor.

SENSEX EPS=EPS OF INDIVIDUAL COMPANIES*FF FACTOR

 EXAMPLE
 Take HDFC Bank for the example. Present EPS for
HDFC Bank is Rs. 44 and Free Float
Adjustment Factor is 0.85. Free Float
Adjustment factor of 0.85 just means 85% of
the total outstanding shares are held by Non-
Promoters and are available in the market for
trade.

Multiply the EPS with Adjustment Factor which

is 44*.85 = 37.4. This 37.4 is the contribution
of HDFC Bank towards SENSEX EPS. Likewise
we need to calculate for all 30 stocks and add
it together to get the final value of SENSEX
EPS .
 P/E RATIO..WHAT IS IT?
 The P/E looks at the relationship between
the stock price and the company’s
earnings.


P/E = MARKET PRICE OF SHARE

Ea rn in g Pe r Sh a re
 WHAT DOES P/E TELL U?
 It tells how much the share holders are
ready to pay per share for every one
rupee of earnings from the company.
 A high P/E indicates that investors are
ready to pay high amount for the stock.


 Better P/E ratio of 15 can be taken as

benchmark for the assessing the
company.

 SENSEX PE
 If we calculate the PE by taking into account all
the 30 SENSEX stocks, then we will end up
with SENSEX PE.

How to calculate?

SENSEX PE = Sum of Market Capitalization of 30 SENSEX Stocks

Sum of Net Profit of all the 30 SENSEX Stocks.
 Market Capitalization = Share Price * Total Shares

Then calculate the Net Profit by multiplying



the EPS with Total Shares.

 Net Profit=EPS*Total Shares

Do this for all the 30 SENSEX stocks.


 Why Promoters
and People are
Crazy about
shares
 W H Y PROM OTERS W ILL SH ARE
TH EIR EFFORTS W ITH SH ARE
H OLD ERS?

 RAISING OF MONEY CAN BE DONE IN TWO

WAYS FOR ANY COMPANY.


1. EQUITY FINANCING( ISSUE OF SHARES)

2. DEBT FINANCING ( ISSUE OF BONDS).
 IN DEBT FINANCING, UR PRINCIPAL
AMOUNT WILL BE GUARANTEED WITH
SOME INTEREST AGREED UPON.


 IN EQUITY, U MAY OR MAY NOT GET

DIVIDENDS. THE NEXT OPTION
AVAILABLE IS CAPITAL APPRECIATION
OF SHARE WHICH WILL BE DONE BY
INCREASE OR DECREASE THE PRICE OF
SHARE VALUE.
WHY PEOPLE ARE CRAZY ABT
SHARES?

 DIVIDENDS
 CAPITAL APPRECIATION
 HIGH RETURNS
 EASY LIQUIDITY
Equity is the superior asset class
to beat inflation

Compounded annual returns based on investing Rs 1000-a-

month

Asset Years
Class 25 20 15 10 5
Sensex 16.7 15.2 14.5 20.0 22.4
Gold 6.6 8.4 11.3 17.1 22.7
FD 9.2 9.2 8 .8 7.5 6 .6 Returns
Bond yield 10.1 10.2 9 .9 8.8 7 .8 in %

Inflation 6.7 6.8 5.8 5.1 5.6

 Se le c t in g Rig h t As s e t Cla s s

 Equity market (represented by BSE Sensex) has

outperformed all other investment avenues

25000.00

20000.00

15000.00

10000.00

5000.00

0.00
1990-91 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Sense
x Bank
Compa
ny Depos
Deposi its
30

25

20

15

10

5
Long-term average over 30 years:
0
17.6%
-5
Dec-83

Dec-91

Dec-93

Dec-97

Dec-99

Dec-01

Dec-05
Dec-79

Dec-81

Dec-85

Dec-87

Dec-89

Dec-95

Dec-03

Dec-07
Lowest level of annual returns over 25 years: 14.6%
This is in spite of …

•Two wars •At least 3 recessionary periods

•At least three major financial scandals •10 different governments and
•Assassination of 2 prime ministers •An unfair share of natural disasters
EQUITIES – A TAX PARADISE
IF YOU SELL YOUR INVESTMENT
IN LESS THAN 12 MONTHS

1 (SHORT TERM), YOU PAY 10%

TAX!
If you sell your investment in

2 more than 12 months (long term),

you will NOT pay any tax!

3 And even the Dividends are TAX

FREE!
 Factors which
affects the Price of
SHARES
 WHY STOCK PRICES WILL
CHANGE UP AND DOWN?
 The best reason for this is LAW OF
DEMAND AND LAW OF SUPPLY

 IF DEMAND > SUPPLY—PRICES WILL
INCREASE

 IF SUPPLY >DEMAND ---PRICES WILL
DECREASE.
WHY DEMAND WILL BE LOW OR
HIGH?
 Because of the likings or disliking of a
particular stock by people.
 Behavior in turn depend on “ EARNINGS”
of the company as in the long run
they become just factors.


 “Earning seasons” ( quarter results) are

the factor only for knowing the stock
behavior.
MULTIPLIER EFFECT
•All c h a n g e s a re in t e r-re la t e d .
•
•In d ia ’s GDP c o m p o s it io n is a kin t o d e ve lo p e d
c o u n t rie s wit h m o re t h a n 5 0 % c o m in g
fro m Se rvic e s e c t o r
•
•Ca p it a l s p e n d in g a lo n g wit h c o n s u m e r
s p e n d in g will c o m p o u n d GDP g ro wt h .
•
•Mo n e t a ry Po lic y Of RBI a s it im p a c t s d ire c t ly
o n a va ila b it y o f m o n e y in m a rke t
 FDI,FII in India

They has an impact on



1. Country's trade balance

2. Increasing labour standards and skills
3. Transfer of new technology and innovative
ideas
4. Improving infrastructure, skills and the
general business climate.
5. The inflows from the US constitute about 11
percent of the total actual Foreign inflows
into India.

Top sectors attracting investment


from USA are :

 Fuels (Power & Oil Ref.) (35.93%)

 Telecommunications (radio paging,

cellular mobile & basic telephone

services) (10.56%)
 Electrical Equipment (including

Computer Software & Electronics)

(9.50%)
 Food Processing Industries (Food

products & marine products)

(9.43%)
 Service Sector (Fin. & Non-Fin.

Services) (8.28%).

 Investing is easy if you avoid
the distractions!

§§Your
Yourindex
indexisisimportant
importantnot
notthe
themarket
market
Market/
Market/Sensex
Sensex §§Sensex flat since 1992
Sensex flat since 1992
§§Wealth
Wealthcreation
creationhas
hasoccurred
occurred

§§Interest
Interestrates,
rates,Currencies,
Currencies,Oil
Oilprices,
prices,Politics..
Politics..
Macroeconomics
Macroeconomics do not alter basic competitiveness
do not alter basic competitiveness
 What Happened in
2008?
India’s Last 5 years

 GDP growth ~9%

 Forex reserves $300B+

 Sensex Jan 2003-Dec 2007 

500%
 India 2008 ?
 Inflation rose to double-digits
 Growth slowing
 Sensex down 50%
 Foreign Institutional Investment
 2007 up $19B
 2008 down $9B
 Rupee
 Down 10% against USD
 Down 17% against the Euro
BSE Se n s it ive All time high &
correction
In d e x begins
22% one-day
25000 decline in US, Start of
no linkage then Asian Crisis;
Unaffected five-year
20000
Harshad bull
Mehta Scam Tech bull market
15000
market &
10000 bust
First Major Bull
Market
5000

Jul-00
Nov-82

Jun-91

Jul-07
Aug-84
May-86
Jan-88

May-03
Sep-97
Feb-99

Sep-04
Feb-06
Apr-79
Dec-80

Sep-89

Mar-93
Sep-94
Mar-96

Dec-01

Deep corrections do not matter for long-term investors

Dividends tend to follow
earnings
CAUSE OF FALL
Sensex P/E Ratio 1995-2008: Overvalued?
30.0
25.0

Sensex P/E Ratio

.
20.0
15.0
10.0

1995 2000 2005 2008

47
 Critical External
Factors
 Spiraling oil prices – 3x in 5
years
 Rising food prices -- 2x since

2005
 International Financial Crisis
 Root Cause
Globalization
 Financial deregulation of banks
& offshore banking
 Globalization of the bond
markets
 Globalization of banking &
equity markets
 Globalization of trade under
WTO

Regulations to overcome:
 Asks purpose for which derivatives to be
used.
 Procedures for approval of counterparties
and brokers.
 The limits to credit, market and other risk.
 Exposure limit.
 Procedure for monitoring the liquidity risk.
 The professional qualification of those
entrusted with derivative activities.
 The valuation methodology.

11th GCA, Mumbai 50

 Where we see the
SENSEX in Future
Future Aspect
India—the next Asian tiger
India provides significant potential for investors
1) We believe India’s economy could be entering a
golden period—we expect real
GDP growth of 8-9% pa for the next 10-20 years.

2) The stock market is relatively

liquid (US$5bn average traded value) with several
diversified sectors.

3) Penetration levels for most products and services are

relatively low, implying ample room for high-growth
investment ideas.

4) Attractive demographics and a high savings rate imply

that demand for equity stocks and mutual funds is likely
to multiply in the next 10-15 years.
 Future Aspect
Key Factors:
Attractive demographics
Strong economic growth
Low penetration levels
Retail loans <10% of GDP
Significantly under-leveraged relative to Asian peers
India spends 5% of GDP vs. China at 11-12%
India is likely to spend US$2.5tn over next 15 years
Only 10% of household savings are in equities
Pension savings are currently invested in bonds,
equity likely to increase significantly
yo u n g a n d g ro win g la b o u r fo rc e .
SENSEX POSSIBILITIES
SENSEX VALUE = SENSEX EPS * SENSEX PE

July 2010 Sensex target of 21,000

July 2010 Sensex target of 21,000 is based on a
forward PE multiple of 14.9x on FY10E EPS. We
forecast a Sensex earnings CAGR of 12% in the next
15-20 years. Assuming a long-term average PE
multiple of 15x, the Sensex could reach a level of
100,000 by FY25 (it is 16,848.33 currently as on 13
Nov 2009).
 Fundamental reasons for this estimation:
 Equally impressive has been the sharp increase in the share of
exports and trade in the economy.


 Exports of goods and services reached 51% of GDP last year.



 India’s potential for mobilizing the large no. of lower-skilled

workers in the rural economy.


 India has also consistently recorded rates of total factor

productivity growth in the past few decades, at around 0.5%
to 1% per annum .
 There are good reasons to believe productivity
growth is rising at the margin.


 Finally, Indian demographics are highly conducive to growth.



 Falling dependency ratios and a rising labour force.



 Availability of a strong pool of savings in the years to come.


Dividend Yields in January
2009
Budget 2009 and its


impacts
 Budget 2009
Agriculture

UNION BUDGET 2009 – 10

“Directed Towards Inclusive
Growth”

Infrastructure

Tax Reforms
Key Takeaways of the budget 2009-10:
 INFRASTRUCTURE SECTOR


 Infrastructure Financing
 • Investment in infrastructure need to be bolstered to 9% of GDP by
2014.
 • Infrastructure Finance Company Ltd IIFCL to refinance 60% of the
commercial bank loans for PPP projects over the next 1-2 Years.


Highways and Railways

• Increased allocation to National Highway Authority of India (NHAI) for the

National Highway Development Project (NHDP) made to INR159.5 bn (up

23%) over FY09.
• Allocation for railways increased to INR158 bn, an increase of 46% YOY.

Urban Infrastructure


 Allocation under Jawaharlal Nehru Urban Renewal Mission (JNNURM)

increased to INR 128.87% (up by 87%) in FY10 over FY09.
 Allocation for housing and provision of basic amenities to urban poor
including provision for Rajiv Awas Yojana increased to INR397.3 bn.
 Provision for the project BRIMSTOWA initiated in 2007 enhanced from
INR2 bn in Interim to INR 5 bn in FY10.
 Power
• Allocation under Accelerated Power
Development and Reform Program increased
by 160% to INR21 bn in FY10.
Gas

• Starting of the development of long distance

gas pipelines leading to the creation of a

National Gas Grid.
Disinvestment

• Public sector enterprises like banks and

insurance will continue to function in the

public sector with full government support for
capitalization.
Financial Sector reforms

• Scheduled commercial banks will be allowed

to set up off-site ATMs without prior approval

 The Market
Many
Emerging Business Global Outsourcers
§ §
§Realty §IT
Sources of Advantage

§Agriculture §Pharmaceuticals
§Power §Engineering

Domestic
Global Commodities Demographics
§ §
§Oil §FMCG
§Metals §Auto
§Banking
Low

Sustainability of Advantage
Low High

Note : Companies may change characteristics over time!

 Conclusion
 What is Sensex:- Barometer of Business
climate
 How it is calculated:-FFMC
 Why companies and individuals keen
about shares-Facilitates capital
formation.
 Likely to lead to boom in other asset
classes as the profits get ploughed.
 Future Prospectus
 Budget 2009
 Forecast based on Leading Indicators – a
useful planning tool.
 Using the Wisdom

Child Education
Child Marriage

We allCar
have goals in life like…

Dream
House
Any Query Please Mention


Thank You