Sensex Meaning: What is Sensex? How is it Calculated?

Calculation Methodology for Sensex

Sensex had historically used weighted market capitalization. However, from September 1, 2003, the methodology was changed to Free Float Market Capization. The same methodology is used by all major indices around the globe. The index's level directly affects the performance of 30 key stocks.

Market Capitalization * Market Capitalization * No Float Factor

Let's now see what the Free Float Factor is.

Free Float refers to the % of total shares issued by a company that are readily available for trading on the market. This excludes shares held by government officials, promoters, and others.

Let's take an example to illustrate the point: If a company has 100 shares, 30 of which are owned by the government or promoters, and 70 are open for trading, then those 70 shares will be the free-floating shares. The free float factor is 70%. Market capitalization is the company's value. Market capitalization can be calculated by multiplying the stock's price with the number issued by the company.

We hope you've learned about Sensex meaning and methodology. Now let's see how Sensex calculates. These terminologies are crucial in calculating Sensex.

How is Sensex calculated?

• The Sensex consists of 30 stocks that have been selected according to the criteria.
• All 30 companies have their Market Capitalizations determined.
• All 30 companies are required to determine their Free Float Market Capitalization.
• To get a total Free Float Market Capitalization for all 30 companies, the Free Float Market Capitalization sums up.
• The formula for Sensex= (total-free float market capitalization/Base market capitalization) * The base index value.
• 1978-79 is the base year for calculating Sensex. The base value is fixed, but must be modified. According to BSE Rs. BSE Rs.
• 100 is the base index value.

Hence,

Sensex= Free Float Market Capitalization of 30 Select Companies /25041.24 Crores* 100

(The free-float market capitalizations of 30 companies are added, which gets divided by 2501.24 crores. Then 100 is multiplied.

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