How is the Sensex calculated?

February 21, 2008 09:02 IST Last Updated: February 21, 2008 10:50 IST

or the premier Bombay Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud mi estone! " ot has changed since 18#$ %hen &18 persons became members of %hat today is ca ed 'he Stock Exchange, (umbai by paying a prince y amount of )e 1! Since then, the country*s capita markets have passed through both good and bad periods! 'he +ourney in the 2,th century has not been an easy one! 'i the decade of eighties, there %as no sca e to measure the ups and do%ns in the Indian stock market! 'he Stock Exchange, (umbai in 1-8. came out %ith a stock index that subse/uent y became the barometer of the Indian stock market! Sensex is not on y scientifica y designed but a so based on g oba y accepted construction and revie% methodo ogy! First compi ed in 1-8., Sensex is a basket of &, constituent stocks representing a samp e of arge, i/uid and representative companies! 'he base year of Sensex is 1-#80#- and the base va ue is 1,,! 'he index is %ide y reported in both domestic and internationa markets through print as %e as e ectronic media! 'he Index %as initia y ca cu ated based on the 1Fu (arket 2apita i3ation1 methodo ogy but %as shifted to the free0f oat methodo ogy %ith effect from September 1, 2,,&! 'he 1Free0f oat (arket 2apita i3ation1 methodo ogy of index construction is regarded as an industry best practice g oba y! " ma+or index providers ike (S2I, F'SE, S'455, S67 and 8o% 9ones use the Free0f oat methodo ogy! 8ue to is %ide acceptance amongst the Indian investors: Sensex is regarded to be the pu se of the Indian stock market! "s the o dest index in the country, it provides the time series data over a fair y ong period of time ;From 1-#- on%ards<! Sma %onder, the Sensex has over the years become one of the most prominent brands in the country! 'he gro%th of e/uity markets in India has been phenomena in the decade gone by! )ight from ear y nineties the stock market %itnessed heightened activity in terms of various bu and bear runs! 'he Sensex captured a these events in the most +udicia manner! 4ne can identify the booms and busts of the Indian stock market through Sensex! Sensex Calculation Methodology Sensex is ca cu ated using the 1Free0f oat (arket 2apita i3ation1 methodo ogy! "s per this methodo ogy, the eve of index at any point of time ref ects the Free0f oat market va ue of &, component stocks re ative to a base period! 'he market capita i3ation of a company is determined by mu tip ying the price of its stock by the number of shares issued by the company! 'his market capita i3ation is further mu tip ied by the free0f oat factor to determine the free0f oat market capita i3ation! 'he base period of Sensex is 1-#80#- and the base va ue is 1,, index points! 'his is often indicated by the notation 1-#80#-=1,,! 'he ca cu ation of Sensex invo ves dividing the Free0f oat market capita i3ation of &, companies in the Index by a number ca ed the Index 8ivisor! 'he 8ivisor is the on y ink to the origina base period va ue of the Sensex! It keeps the Index comparab e over time and is the ad+ustment point for a Index ad+ustments arising out of corporate actions, rep acement of scrips etc! 8uring market hours, prices of the index scrips, at %hich atest trades are executed, are used by the trading system to ca cu ate Sensex every 1$ seconds and disseminated in rea time! Dollex-30

BSE a so ca cu ates a do ar0 inked version of Sensex and historica va ues of this index are avai ab e since its inception! Understanding Free-float Methodology Free0f oat (ethodo ogy refers to an index construction methodo ogy that takes into consideration on y the free0f oat market capita isation of a company for the purpose of index ca cu ation and assigning %eight to stocks in Index! Free0f oat market capita i3ation is defined as that proportion of tota shares issued by the company that are readi y avai ab e for trading in the market! It genera y exc udes promoters* ho ding, government ho ding, strategic ho ding and other ocked0in shares that %i not come to the market for trading in the norma course! In other %ords, the market capita i3ation of each company in a Free0f oat index is reduced to the extent of its readi y avai ab e shares in the market! In India, BSE pioneered the concept of Free0f oat by aunching BSE 'E2k in 9u y 2,,1 and Bankex in 9une 2,,&! >hi e BSE 'E2k Index is a '(' benchmark, Bankex is positioned as a benchmark for the banking sector stocks! Sensex becomes the third index in India to be based on the g oba y accepted Free0f oat (ethodo ogy! The 30 Sensex stoc s are! "22, "mbu+a 2ements, Ba+a+ "uto [?et @uote], BAEB, Bharti "irte [?et @uote], 2ip a, 8BF, ?rasim Industries [?et @uote], A8F2 [?et @uote], A8F2 Bank, Ainda co Industries [?et @uote], Aindustan Bever [?et @uote], I2I2I Bank [?et @uote], Infosys [?et @uote], I'2, Barsen 6 'oubro, (ahindra 6 (ahindra, (aruti Cdyog [?et @uote], D'72, 4D?2 [?et @uote], )anbaxy Baboratories [?et @uote], )e iance 2ommunications [?et @uote], )e iance Energy [?et @uote], )e iance Industries [?et @uote], Satyam 2omputer Services [?et @uote], State Bank of India [?et @uote], 'ata 2onsu tancy Services [?et @uote], 'ata (otors [?et @uote], 'ata Stee [?et @uote], and >ipro [?et @uote]!