Satyam has been removed from NIFTY and SENSEX

Following the fraud acknowledgement by the promoter B Ramalinga Raju, NIFTY in a statement has announced that Satyam would be removed from Nifty 50, and Reliance Capital would be included in its place effective January 12th 2009. It would get removed from other NSE indices CNX 100, S&P CNX 500,CNX IT and the CNX Services sector index.

BSE in an announcement said that Sun Pharma would replace satyam computers in Sensex. Glaxosmithkline Pharmaceuticals would replace satyam in BSE 100. It would also get removed from BSE 200, BSE 500, BSE Teck and BSE IT indices.

January 7, 2009 | Filed Under Market Outlook | Comments Off

Satyam Financial irregularities

Satyam’s chief B Ramalinga Raju resigned after a shocking revelation about financial irregularities in the Indian software major. It was a stunning news and first of its kind in Indian stock market.

In a letter to board of directors, SEBI and exchanges he revealed that as of September there exists an inflated cash (non-existent but shown in books) and bank balances of Rs 5040 crores. He admitted that fictitious assets were created to cover the improper balance sheet entries and the recent MAYTAS acquisition trial is also part of that.

He also mentioned that it has been happening for years and started off to cover a marginal gap between actual operating profit booked and that stated in the books few years ago. It means the profits are shown higher purposefully. As there was a large difference between the actual profits and that stated in the balance sheet he decided to acquire MAYTAS to make the fictitious assets real; but the deal failed. Had it gone successfully he would have shown MAYTAS assets for the so called ‘great cash reserves’.

Satyam’s share price tumbled 78% in BSE after the news got out. It settled at Rs40 at the end of the trading. It last nearly 10,000 crores of its market capitalization. In the pre market trade of NYSE Satyam’s ADR s were traded down 91%. Read more

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

scrip selection criteria for an Index - Sensex/Nifty

Criteria for selecting stocks of a market index:

1.    Diversification.
2.    Market Capitalization
3.    Liquidity

Diversification: An index should represent the overall market. So the constituents are picked from different sectors. At the time of creating an index they consider the sectors which contributed to the growth of the economy. There would be no benefit if they include stocks of undeveloped sectors. Beyond a certain point adding more stocks would bring zero benefit. That’s why there are no aviation companies in Sensex. In recent years there has been a significant improvement in this sector. In future we can expect a representation from this sector; may not be addition to the existing 30 shares but as a replacement to other stock. We have seen this kind of replacement when DLF was added in place of Dr Reddy’s labs. So they select developed sectors and finalize the number of stocks in an index. This number doesn’t get changed most of the times. Read more

January 3, 2009 | Filed Under Stocks | Leave a Comment

Types of Stock market indexes - Sensex Nifty calculation

There are three different types of stock indexes.

Market capitalization weighted index
Price weighted index
Equally weighted index

Market capitalization based index is the famous one among the above and is used by most of the exchanges world wide. BSE Sensex and NSE NIFTY are calculated based on the method of market capitalization weight.

Market capitalization weighted index: In this method of calculation each company is given weight according to their market capitalization. So the higher the market capitalization of a constituent higher is its weight in the index.

For simplicity assume there are only 5 constituents in an index. A base value will be taken to calculate present value of the index. Usually this base value corresponds to prices of the constituent stocks on a particular historic date. For this example, say as at April 3rd 2000. I didn’t take April 1st because you may think I am fooling you Take the base value as 1000. Read more

January 3, 2009 | Filed Under Stocks | 2 Comments

What is Stock market Index

A stock market index is constituted by a set of stocks in an equity market. It could be exchange specific or country or region specific or sector specific. It gives a relative picture of performance of a country/region. It’s not an absolute measure but serves as a most important thing for benchmarking and comparing. Mutual funds performance is measured against a predefined index. A stock market index number is a relative measure of the prices of a pre-defined group of stocks. It is a relative value because it is expressed relative to the weighted average of prices at some chosen starting date or base period. So all the constituents don’t necessarily go down when the value of an index goes down. But its movement shows the trend of the market i.e. bullish or bearish.

January 3, 2009 | Filed Under Stocks | Leave a Comment

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