IT IS ALL ABOUT SENSEX IN BREIF

2. The S&P BSE
SENSEX also-called
the BSE 30 or simply
the SENSEX, is a free-float
market-weighted stock
market index of 30 well-
established and financially
sound companies listed
on Bombay Stock
Exchange. The 30
component companies
which are some of the
largest and most actively
traded stocks, are
representative of various
industrial sectors of the

4. We need the index to measure & compare the performance of
various markets. Using the indices for various markets, we can
reduce each country to a single aggregated number and then look at
how these numbers move. For instance, here is a tool that we have
built to compare the performance of different stock markets in the
world using indices such as the Sensex. (Red is bad, green is good).
You can decipher quickly that India, Brazil and Europe have
performed poorly in the past 5 years, while US, Australia and Chile
have been among the best performance - by this measure

6. How is the Sensex Calculated?
Free-float market capitalization is defined as
that proportion of total shares issued by the
company that is readily available for trading in
the market. It 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.
So, simply put, Free-float market capitalization
is the proportion of total shares available for
trading to the general public.

7. COMPANY
A
1000
SHARES
800-FREE FLOAT
200-
PROMOTERS
EACH SHARE-
120
TOTAL MARKET
CAPTALIZATION
1,20,000
FREE
FLOAT
96,000

8. The calculation of Sensex involves the following steps broadly
1.Calculate the market capitalization of each of the 30
companies in the index by multiplying their stock price by the
number of shares issued by that company.
2.Multiply the market capitalization by the free-float
factor to determine the free-float market capitalization.
Free-float factor of a company is a multiple with which the total
market capitalization of that company is adjusted to arrive at its Free-
float market capitalization. It is determined by BSE based on the
information submitted by the companies. The value of Free-float
factor lies between 0.05 and 1.00. A Free-float factor of say 0.55
means that only 55% of the market capitalization of the company will
be considered for index calculation.

9. 3.Divide the free-float market capitalization of the Index constituents
by a number called theIndex 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.
The base period of Sensex is 1978-79 and the base value is 100 index
points.
An Example:
Suppose the Index consists of only 2 stocks: Stock X and Stock Y.
Then, the table below shows the SENSEX calculation: