# How to calculate SENSEX

Ravi Satpal , 02 October 2008

The Sensex , an abbreviation of the BSE sensitive index, is a market capitalisation-weighted index of 30 stocks representing a sample of large, well-established and financially sound companies. It is the oldest index in India and has acquired a unique place in the collective consciousness of investors. The index is widely used to measure the performance of the Indian stock markets. Sensex is considered to be the pulse of the Indian stock markets as it represents the underlying universe of listed stocks on The Stock Exchange, Mumbai. Further, as the oldest index of the Indian stock market, it provides time series data over a fairly long period of time (since 1978-79). Sensex is not only scientifically designed but also based on globally accepted construction and review methodology. Sensex Calculation Methodology As per the 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. The market capitalisation of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalisation is further multiplied by the free-float factor to determine the free-float market capitalisation. The base period of Sensex is 1978-79, and the base value is 100 points. This is often indicated by the notation 1978-79=100. The calculation of Sensex involves dividing the free-float market capitalisation of 30 companies in the index 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, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate the Sensex every 15 seconds and disseminated in real time.

Ravi Satpal
(CA (Final) & CS (Executive) Student)
Category Shares & Stock   Report

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