Advantages of Free-Float market capitalization method

A market index should reflect the market movements. Since the index funds follow a market index, it should consider only liquid scrips and the active portion of the outstanding shares so that it reflects the market conditions in a better way. So free-float market capitalization method of calculating index value is suitable.

Passive investments such as foreign direct investments are easily replicable. It aids in index flexibility and covers overall market (for market indices) and sectors (for sector indices). It avoids the undue influence of any closely-held (i.e. more promoter holding) large-capitalization stock on the index movement. Read more

January 17, 2009 | Filed Under Fundamental Analysis | Leave a Comment

Actual Sensex Calculation – Free float Market Capitalization

We have already discussed different types of stock market indices. Market capitalization is the most common method across the world. The market capitalization method we covered is ‘Full Market Capitalization method’. But in reality, in most of the markets, Full Market Capitalization is not used for calculating market index values. At any time only a part of the total market capitalization is readily available for trading in the market. This is because promoters’ holding, government holding, strategic holding and other locked-in shares will not be available in the market for trading in the normal course.

A company provides the holdings information to the exchanges periodically. The exchanges calculate free-float factor as follows

(No. of shares readily available for trading in the market) / (Total number of shares outstanding) Read more

January 17, 2009 | Filed Under Stocks | Leave a Comment

How inflation is calculated in India

In the previous article we discussed about what is Inflation. Now we would like to cover how inflation is calculated in India. India uses Wholesale Price Index (WPI) to calculate inflation.

Wholesale Price Index measures the average of the changes of goods and services price on the basis of wholesale price. Presently 435 commodities price level is being tracked through whole sale price index in India. It is also the price index which is available on a weekly basis with the shortest possible time lag of only two weeks. India considers 1993-94 financial year as base year for present WPI index calculation.

The 435 commodities are divided into different groups & sub groups. The list of 435 commodities can be found here. Each commodity has some weightage in the WPI index. Below are the weightages of commodities group wise: Read more

January 17, 2009 | Filed Under Economy | 2 Comments

Ramalinga Raju’s letter to the Board of Directors and SEBI

To the Board of Directors,
Satyam Computer Services Ltd.

From B. Ramalinga Raju,
Chairman, Satyam Computer Services Ltd. January 7, 2009

Dear Board Members,

It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:

1. The Balance Sheet carries as of September 30, 2008
a. Inflated (non-existent) cash and bank balances of Rs 5040 crore ($1.04 billion) (as against 53.61 billion reflected in the books).
b. An accrued interest of Rs 376 crore which is non-existent.
c. An understated liability of Rs 1230 crore on account of funds arranged by me.
d. An overstated debtors position of Rs 490 crore (as against 26.51 billion reflected in the books)

2. For the September quarter (Q2) we reported a revenue of Rs 2700 crore and an operating margin of Rs 649 crore (24 pct of revenues) as against the actual revenues of Rs 2112 crore and an actual operating margin of Rs 61 crore (3 per cent of revenues). This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone. Read more

January 7, 2009 | Filed Under Market Outlook | Leave a Comment

Merrill Lynch terminates advisory agreement with Satyam

In a letter to Securities and Exchange Board of India (SEBI), Merrill Lynch said that it has opted to terminate the advisory agreement with Satyam Computer Services following the revelation of accounting irregularities in the books of SATYAM.

Please take a look at the original letter.

MerrillLynch Letter to SEBI

January 7, 2009 | Filed Under Market Outlook | Leave a Comment

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