How is Sensex Calculated?

Sensex is calculated using the “Free-float Market Capitalization” method. The level of index at any point of time reflects the free-float market value of 30 constituents stocks relative to a base period. Sensex is Calculated.

What is the Free-float Market Capitalization?

Free float stands for the shares that are open for trading. All shares may not be Free-floating. The Free-floating market capitalization is calculated by taking the equities price and multiplying it by the number of shares readily available in the market.

What is Market Capitalization?

Market capitalization refers to the total dollar market value of a company’s outstanding shares. It is the combined worth of all the stocks of different companies within stock exchanges. This market capitalization is again multiplied by the free float factor to determine the free-float market capitalization. Market capitalization is one of the most important characteristics. That helps the investor determine the returns and the risk in the share. It also helps the Investor to choose the stock. That can meet their risk and diversification criterion. Sensex is Calculated.

How Sensex Works Example :

Suppose the index has two companies – A & B.

Company A has 1000 shares out of which 700 are free-floating or available for the general public to buy and sell. The price of each share is Rs. 70.

Company B has 500 shares out of which 300 are free-floating. The price of each share is Rs. 90

Market capital of Company A = 70,000

Market capital of company B = 45,000

Free-float factor for company A = 0.70

Free-float factor for company B = 0.60

Total free-float market capital of the index =

(Market capital of Company A*Free-float factor company A) + (Market capital of company B*Free-float factor company B)

(70000*0.70) + (45000*0.60) = 76,000

Let us assume the base year index was 5,000.

Value of Index = (Total free-float market capital of the index * 100) /Base year index

76000*100/5000 =1,520

So the Value of the Index is 1,520.

The Same Example can be applied to how Nifty Calculated.

History of Bombay Stock Exchange (BSE) :

Bombay Stock Exchange or BSE is located at Dalal Street in Mumbai. Established in 1875, BSE (Formerly known as Bombay Stock Exchange Ltd), is Asia’s first and fastest Stock Exchange in the world with the speed of 6 microseconds and one of India’s leading exchange groups. With a market cap of more than \$1.40 trillion. BSE is one of the largest exchanges in the world. Over the past 143 years, BSE has facilitated the growth of the Indian corporate sector by providing an efficient capital-raising platform. Almost two decades later, this small group moved to the Dalal Street in 1875, and later, in the following year, it was recognized as an official organization by the name “The Native Share & Stock Brokers Association”. In 2017, BSE become the First listed stock Exchange of India.

BSE became the first stock exchange to be recognized by the government of India in 1956. BSE Sensex was developed in 1986 which was considered. As a tool to measure the overall performance of the Bombay Stock Exchange. BSE provides an efficient and transparent market for trading equity, debt instruments, derivatives, mutual funds.

Graph Showing the performance of Sensex :

Sensex consists of 30 components (stocks) that broadly represent the composition of the entire market. Bombay Stock Exchange market is one of the largest exchanges worldwide. Normally, there are more than 5,500 public listed companies on the BSE. The term Sensex was coined by stock market analyst Deepak Mohoni and is a portmanteau of the words sensitive.

Now let us have a look at the 30 stocks that form the part of BSE Index :

30 List of Companies in the BSE

 S.No Companies 1 Asian Paints 2 Axis Bank 3 Bajaj Auto 4 Bajaj Finance 5 Bharti Airtel 6 Coal India 7 HDFC Bank 8 HCL Technologies 9 Hero MotoCorp 10 Hindustan Unilever 11 Housing Development Finance Corporation 12 ICICI Bank 13 IndusInd Bank 14 Infosys 15 ITC 16 Kotak Mahindra Bank 17 Larsen & Toubro 18 Mahindra & Mahindra 19 Maruti Suzuki 20 NTPC 21 Oil and Natural Gas Corporation 22 Power Grid Corporation of India 23 Reliance Industries 24 State Bank of India 25 Sun Pharmaceutical 26 Tata Consultancy Services 27 Tata Motors 28 Tata Motors DVR 29 Tata Steel 30 Vedanta 31 Yes Bank

The growth of the equity market in India has been a phenomenal decade. BSE SME is India’s largest SME platform which has listed over 250 companies and continues to still maintain at a steady pace. BSE Star MF is India’s largest online mutual fund platform which processes over 27 lakh transactions per month and adds almost 2 Lakh new SIPs every month. These BSE bond, the transparent and efficient electronic book mechanism process for the private placement of debt securities. The market leader with more than Rs. 2.09 lakh crore of fundraising from 530 issuances. Right from the early nineties, the Bombay Stock Exchange market witnessed heightened activity in terms of various bull and bear runs. In the late nineties, the Indian market witnessed a huge frenzy in the “TMT” sector.

Performance of Sensex from 2000 to 2018 – (BSE) Sensex historical Data :
 Year Open High Low Close 2000 5,209.54 6,150.69 3,491.55 3,972.12 2001 3,990.65 4,462.11 2,594.87 3,262.33 2002 3,262.01 3,758.27 2,828.48 3,377.28 2003 3,383.85 5,920.76 2,904.44 5,838.96 2004 5,872.48 6,617.15 4,227.50 6,602.69 2005 6,626.49 9,442.98 6,069.33 9,397.93 2006 9,422.49 14,035.30 8,799.01 13,786.91 2007 13,827.77 20,498.11 12,316.10 20,286.99 2008 20,325.27 21,206.77 7,697.39 9,647.31 2009 9,720.55 17,530.94 8,047.17 17,464.81 2010 17,473.45 21,108.64 15,651.99 20,509.09 2011 20,621.61 20,664.80 15,135.86 15,454.92 2012 15,534.67 19,612.18 15,358.02 19,426.71 2013 19,513.45 21,483.74 17,448.71 21,170.68 2014 21,222.19 28,822.37 19,963.12 27,499.42 2015 27,485.77 30,024.74 24,833.54 26,117.54 2016 26,101.50 29,077.28 22,494.61 26,626.46 2017 26,711.15 34,137.97 26,447.06 34,056.83 2018 34,059.99 38,989.65 32,483.84 36,076.72

Sensex Historical Data – Last 30 Days :

 Date Open High Low Close 01-Jul-19 39,543.73 39,764.82 39,541.09 39,686.50 02-Jul-19 39,811.68 39,838.49 39,499.19 39,816.48 03-Jul-19 39,907.57 39,934.99 39,732.38 39,839.25 04-Jul-19 39,917.65 39,979.10 39,858.33 39,908.06 05-Jul-19 39,990.40 40,032.41 39,441.38 39,513.39 08-Jul-19 39,476.38 39,476.38 38,605.48 38,720.57 09-Jul-19 38,754.47 38,814.23 38,435.87 38,730.82 10-Jul-19 38,701.99 38,854.85 38,474.66 38,557.04 11-Jul-19 38,751.62 38,892.50 38,631.31 38,823.11 12-Jul-19 38,941.10 39,021.84 38,684.85 38,736.23 15-Jul-19 39,009.95 39,023.97 38,696.60 38,896.71 16-Jul-19 38,961.86 39,173.89 38,845.27 39,131.04 17-Jul-19 39,171.10 39,284.73 39,081.14 39,215.64 18-Jul-19 39,204.47 39,204.47 38,861.25 38,897.46 19-Jul-19 39,058.73 39,058.73 38,271.35 38,337.01 22-Jul-19 38,333.52 38,333.52 37,890.32 38,031.13 23-Jul-19 38,138.56 38,217.81 37,898.90 37,982.74 24-Jul-19 37,990.23 38,102.84 37,708.41 37,847.65 25-Jul-19 37,935.02 38,169.87 37,775.51 37,830.98 26-Jul-19 37,831.18 37,978.07 37,690.47 37,882.79 29-Jul-19 38,043.22 38,043.22 37,519.16 37,686.37 30-Jul-19 37,735.54 37,950.21 37,359.03 37,397.24 31-Jul-19 37,257.55 37,576.37 37,128.26 37,481.12

SENSEX – Scrip Selection Criteria:

The General guidelines for selections of constituents in SENSEX are as follows:

1. Listing History : The script should have a listing history of last 3 months at BSE. Minimum requirements of 3 months is reduced to one month, if full market capitalization of a newly listed company ranks among top 10 in the list of BSE universe. In case a company is listed on account of merger / demerger / amalgamation. Minimum listing history would not be required.
2. Trading Frequency: The script should have been traded on each and every trading day in the last three months. Exceptions can be made for extreme reasons like scrip suspension etc.
3. Final Rank: The script should figure in the top 100 companies listed by the final rank. The final rank is arrived by assigning 75% weightage to the rank on the basis of three-month average full market capitalization and 25% weightage to the liquidity rank based on three-month average daily turnover & three-month average impact cost.
4. Market capitalization Weightage: The weight of each script in SENSEX based three-month average free-float market capitalization should be at least 0.5% of the Index.
5. Industry/Sector Representation: Scrip selection would generally take into account a balanced representation of the listed companies in the universe of BSE.
6. Track Record: In the opinion of the Index Committee, the company should have an acceptable track record.

The beta of SENSEX Scrips:

Beta calculates the sensitivity of a scrip movement in the benchmark index i.e., BSE. A Beta of the means that for every change of 1% in the index, the scrip moves by 1%.

Statistically, Beta is defined as Bellow:

Beta = Covariance [ (SENSEX, Stock) / Variance (SENSEX) ].

Note: Covariance and Variance are calculated from the daily returns data of the SENSEX and SENSEX scrip.

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