How Is Sensex Calculated?

The Sensex was initially calculated based on the “Full Market Capitalization” methodology but was shifted to the “Free-float methodology” with effect from September 1, 2003.

As per the Free-float Market Capitalization 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. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.

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

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3.  Divide the free-float market capitalization of the Index constituents 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.

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:

Understanding the result:

Step 1 and Step 2 are self-explanatory. Lets understand the Step 3.

The year 1978-79 is considered the base year of the index with a value set to 100. What this means is that if at that time the market capitalization of the stocks that comprised the index was 60,000, then the index-value at that time would be 100. So, using simple unitary method, we can find the corresponding present value of the SENSEX.

The factor 100/60000 is called the index divisor.

What are the 30-benchmark stocks?

The 30-benchmark stocks are given below, along with their Free-float factor:

Note : This above list keeps on changing from time to time, based on the various guidelines that BSE follows for the selection of benchmark stocks.