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IPO FAQs » Stock Market Basics » Post Comments

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How is SENSEX decided?

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Date Last Updated: 12/16/2007 9:51:05 PM

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User Comments

9.  Ankit gala      Jun 05, 2013 6:51:52 PM IST
Can someone help me...where can i get the list of constituents of Market capitalisation, Outstanding Shares and the Weightage there of to caluclate the Weightage of Stock in Nifty.... 

8.  Anjali negi      Feb 25, 2013 1:25:28 PM IST
How to calculate sensex.

Formula :- Index divisor X Free Float Market Capitalization
So, First we know about Index Devisor and Market Capitalization.
Market Capitalization: -
Many different types of investors hold the shares of a company! The Govt. may hold some of the shares. Some of the shares may be held by the “founders” or “directors” of the company. Some of the shares may be held by the FDI’s etc.
Now, only the “open market” shares that are free for trading by anyone, are called the “free-float” shares. When we are calculating the Sensex, we are interested in these “free-float” shares!
A particular company, may have certain shares in the open market and certain shares that are not available for trading in the open market.
According the BSE, any shares that DO NOT fall under the following criteria, can be considered to be open market shares:
•      Holdings by founders/directors/ acquirers which has control element
•      Holdings by persons/ bodies with "controlling interest"
•      Government holding as promoter/acquirer
•      Holdings through the FDI Route
•      Strategic stakes by private corporate bodies/ individuals
•      Equity held by associate/group companies (cross-holdings)
•      Equity held by employee welfare trusts
•      Locked-in shares and shares which would not be sold in the open market in normal course.
A company has to submit a complete report about “who has how many of the company’s shares” to the BSE. On the basis of this, the BSE will decide the “free-float factor” of the company. The “free-float factor” is a very valuable number! If you multiply the "free-float factor" with the “market cap” of that company, you will get the “free-float market cap” which is the value of the shares of the company in the open market! A simple way to understand the “free-float market cap” would be, the total cost of buying all the shares in the open      market!


index divisor:-

Now, meaning of base year/ days, take any days or year sensex as base and market capitalization .it is unable to say what was the base year when BSE come into force.
Easy step to calculation
Step First: Find out the “free-float market cap” of all the 30 companies that make up the Sensex!
Step Second: Add all the “free-float market cap’s” of all the 30 companies!
Step third: Put it in given formula then you will get the Sense      value!



Let be an example,
There are two companies ( among 30 companies) A Ltd & B Ltd .
A Ltd: - issued share 5000, in which 2000 share are held by Promoters, and market price of share Rs. 125.
B Ltd.:- issued share 10000, in which 5000 share are
Held by Promoters, and market price of share Rs. 250.
Total Market capital Free Float Capitalization
A. Ltd. 5000X125 = 625000.00 3000X125 =375000.00
B. Ltd. 10000X 250=2500000.00       5000X250 =125000.00
Total        3125000.00                   1625000.00
Let be base year 1982-83 Sensex was 5000 and market capitalization 1500000.00. then put it below formula and get new sensex.




New sensex=5416.67
You may calculate, present sensex taking lastdays value of sensex and capitalization as base.
Please Note: Every time one of the 30 companies has a “stock split” or a "bonus" etc. appropriate changes are made in the “market cap” calculations.
Now, there is only one question left to be answered, which 30 companies, why those 30 companies, why no other companies?
The 30 companies that make up the Sensex are an “index committee”. This “index committee” is made up of academicians, mutual fund managers, finance journalists, independent governing board members and other participants in the financial markets.

The main criteria for selecting the 30 stocks is as follows:
Market capitalization: The company should have a market capitalization in the Top 100 market capitalizations of the BSE. Also the market capitalization of each company should be more than 0.5% of the total market capitalization of the Index.

Trading frequency: The company to be included should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like share suspension etc.

Number of trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year.

Industry representation: The companies should be leaders in their industry group.

Listed history: The companies should have a listing history of at least one year on BSE.

Track record: In the opinion of the index committee, the company should have an acceptable track record.
Having understood all this, you now know how the Sensex is calculated.

 

7.  devang chudasama      Aug 10, 2012 10:55:33 PM IST
The full form of Sensex is Sensitive Index and of NIFTY National Fifty.
Sensex is a Bench mark index of BSE and Nifty is an Index of NSE.
Sensex 30 comprises of all major companies listed on BSE based on their market cap. and liquidity.
Some of the companies at present in SENSEX 30 are Reliance Ind., Infosys , Satyam ,TCS, LNT, etc.
The movement in the all 30 scripts makes a movement in Sensex i.e. it leads the sensex to go up or down.
The same is in case of NIFTY it comprises to top 50 stocks listed on NSE.
Their movement will deside index movement.

Some times we see Midcaps are positive even when Sensex is traling down 400 points , this is because Sensex is calculated on bases of 30 stocks in it.
 

6.  pankaj modi      Apr 27, 2010 1:11:09 PM IST
sensex is decided by top 30 companies of the market. these 30 company has taken from all sector. the selection of company is on the basis of their performance. nse changes these company on time to time basis as per their performance 

5.  Ramu      Mar 21, 2008 11:00:02 PM IST

Sensex is calculated using the "Free-float Market Capitalization" methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of Sensex is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of Sensex involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor.
The Divisor is the only link to the original base period value of the Sensex. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate Sensex every 15 seconds and disseminated in real time.

Suppose the Index consists of only 2 stocks: Stock A and Stock B.
Suppose company A has 1,000 shares in total, of which 200 are held by the promoters, so that only 800 shares are available for trading to the general public. These 800 shares are the so-called 'free-floating' shares.

Free-float shares generally 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. In other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the market
Similarly, company B has 2,000 shares in total, of which 1,000 are held by the promoters and the rest 1,000 are free-floating. Market
Now suppose the current market price of stock A is Rs 120. Thus, the 'total' market capitalisation of company A is Rs 120,000 (1,000 x 120), but its free-float market capitalisation is Rs 96,000 (800 x 120).
Similarly, suppose the current market price of stock B is Rs 200. The total market capitalisation of company B will thus be Rs 400,000 (2,000 x 200), but its free-float market cap is only Rs 200,000 (1,000 x 200).
So as of today the market capitalisation of the index (i.e. stocks A and B) is Rs 520,000 (Rs 120,000 + Rs 400,000); while the free-float market capitalisation of the index is Rs 296,000. (Rs 96,000 + Rs 200,000).
The year 1978-79 is considered the base year of the index with a value set to 100. What this means is that suppose at that time the market capitalisation of the stocks that comprised the index then was, say, 60,000 (remember at that time there may have been some other stocks in the index, not A and B, but that does not matter), then we assume that an index market cap of 60,000 is equal to an index-value of 100.
Thus the value of the index today is = 296,000 x 100/60,000 = 493.33
This is how the Sensex is calculated.
The factor 100/60000 is called index divisor.

Disclaimer: Reproduced from an available resource with due respect to the author (thanks a ton boss) and for the benefit of thousands of readers.  

4.  Dr Raju      Feb 06, 2008 9:34:43 PM IST
Its indicator of entire market judged by carefulyy selected about 30 dynamic stocks in Mumbai Share market 

3.  VISHAL      Jan 30, 2008 3:18:33 PM IST
SCRIPS OF SENSEX IS DECIDED AND REVISED BY "BSE" TIME TO TIME.
THEY KEEP CHANGING THE SCRIPS OR THEIR WEIGHTAGE IN HTE SENSEX. IT DOESNT MEAN THAT SENSEX VALUE AT ANY TIME IS MERE SUM OF PRICES OF ALL 30 SCRIPS PRESENT IN SENSEX AT THAT TIME, BUT THE PRICES ARE WEIGHTED AND THEN ACCUMULATED TO BRING OUT SENSEX VALUE..
MOST WEIGHTED IN NOW SENSEX IS "RIL" WITH AROUND 12% WEIGHTAGE 

2.  suresh      Jan 22, 2008 4:10:24 PM IST
what is the reasons for market up and downs? could you help me 

1.  shiva      Dec 18, 2007 12:39:20 PM IST
Sensex is nothing but 30 shares combination from different sectors. 

 

 

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