The Capital Market and It’s Indicators

BSE Sensex or ‘sensitive index’ is calculated by considering the 30 different companies listed in the BSE. The process known as ‘free-float market capitalization’ is accepted world-wide and is also considered to be the best method for calculating stock market index.

Market capitalization is the worth of the company in terms of its shares. To calculate this we multiply the current share price by the number of shares issued by the company. Based on this value the company becomes large-cap, mid-cap, or small-cap.

Free float shares are those shares available in the open market. These shares are not held by the founders, directors, FDI, government or employee welfare trust. The open market shares of the company need to be reported to the BSE to decide the ‘free float factor’ of the company. By multiplying ‘free float factor’ with ‘market cap’ we arrive at ‘free float market capitalization’ which is the value of the shares of the company in open market.

Sensex value is arrived by adding all the ‘free float market capitalization’ of the 30 listed companies and making it relative to the Sensex base (the only link to the original base period value of stocks). The 30 companies selected by the BSE need to be traded every day, have an acceptable track record and should be leaders in their industry group.

The index ever since 1990 to the present day has increased by ten times. BSE Sensex contributes the rate of return to 9% per annum after accounting for inflation.

Just like the BSE the NSE is the National Stock Exchange and NIFTY( S & P CNX Nifty ) measures the movement of the 50 stocks listed in the NSE. However other stock exchanges like the Calcutta Stock Exchange are not as popular as the BSE and NSE. NSE is mutually owned by leading banks, insurance companies, financial institutions and other financial intermediaries in India. Responsible for large majority of share transactions NSE is the second largest stock exchange in South Asia behind the BSE and the eleventh largest in the world. NSE was incorporated in 1993 as a stock exchange by the government of India and started operations in June 1994. At present NSE have segments of the capital market, equity, futures and options, retail debt market and whole sale debt market.

The live market quotes provided by a web organization display data on stocks/ markets and index information. In India there are many sites that show the variations in the stock markets during the day. Thus financial markets are generally unpredictable but rising stocks stimulate the economy. One of the funniest things about stock market is that every time one person buys, another sells and both think they are astute.