What is SENSEX?

A glance through Indian Stck Market invariably leads to the word/term known as SENSEX. But what is it really? SENSEX is the short term for the words "Sensitive Index" and is associated with the Bombay (Mumbai) Stock Exchage (BSE). What is it? The SENSEX was first formed on 1-1-1986 and used the market capitalization of the 30 most traded stocks of BSE. The base was 1979 and taken as 100. The 30 scrips of 1986 and no more the same - some have been removed while some have been added. At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its composition to make sure it reflects current market conditions. Today the Sensex constitutes of the following companies: Company Name (Industry) 1. ACC (Cement - Major) 2. Bharti Airtel (Telecommunications - Service) 3. BHEL (Engineering - Heavy) 4. DLF (Construction & Contracting - Real Estate) 5. Grasim (Diversified) 6. HDFC Bank (Banks - Private Sector) 7. HDFC (Finance - Housing) 8. Hindalco (Aluminium) 9. HUL (Personal Care) 10. ICICI Bank (Banks - Private Sector) 11. Infosys (Computers - Software) 12. ITC (Cigarettes) 13. Jaiprakash Associates (Construction & Contracting - Civil) 14. Larsen & Toubro (Diversified) 15. Mahindra and Mahindra (Auto - Cars & Jeeps) 16. Maruti Suzuki (Auto - Cars & Jeeps) 17. NTPC (Power - Generation/Distribution) 18. ONGC (Oil Drilling And Exploration) 19. Ranbaxy Labs (Pharmaceuticals) 20. Reliance Communications (Telecommunications - Service) 21. Reliance Industries Limited (Diversified) 22. Reliance Infrastructure (Power - Generation/Distribution) 23. State Bank of India (Banks - Public Sector) 24. Sterlite Industries (Metals - Non Ferrous) 25. Sun Pharma (Pharmaceuticals) 26. Tata Motors (Auto - LCVs/HCVs) 27. Tata Power (Power - Generation/Distribution) 28. Tata Steel (Steel - Large) 29. TCS (Computers - Software) 30. Wipro (Computers - Software) Click here for a history of Sensex companies. How is the Sensex calculated? Sensex is calculated using the "Free-float Market Capitalization" methodology. As per this

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 capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization. The base period of Sensex is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of Sensex involves dividing the Free-float market capitalization 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. What is Free-Float Market Capitalization? Many different types of investors hold the shares of a company! The Govt. may hold some of the shares. Some of the shares may be held by the founders or directors of the company. Some of the shares may be held by the FDIs, etc. Now, only the open market shares that are free for trading by anyone. These are called the free-float shares. When we are calculating the Sensex, we are interested in these free-float shares! A particular company, may have certain shares in the open market and certain shares that are not available for trading in the open market. According the BSE, any shares that DO NOT fall under the following criteria, can be considered to be open market shares: Holdings by founders/directors/ acquirers which has control element Holdings by persons/ bodies with "controlling interest" Government holding as promoter/acquirer Holdings through the FDI Route Strategic stakes by private corporate bodies/ individuals Equity held by associate/group companies (cross-holdings) Equity held by employee welfare trusts Locked-in shares and shares which would not be sold in the open market in normal course.

Sensex Calculation a) Find out the free-float market cap of all the 30 companies that make up the Sensex! b) Add all the free-float market caps of all the 30 companies! c) Make all this relative to the Sensex base. The value you get is the Sensex value! To explain this further: Suppose that the Sensex was made up of two companies, A and B. Company A, had 100 (free-float) shares in the market in 1979 and the price of Rs. 10. Market cap = Rs. 1000 Company B, had 200 (free-float) shares in the market in 1979 and the price of Rs. 15. Market cap = Rs. 3000

So the Sensex had a total market cap of Rs. 4000 in 1979 and this is taken as index value = 100 Today company A has 1000 (free-float) shares and the current price is Rs. 150, while company B has 5000 (free-float) shares at Rs. 120. Hence market cap = Rs. 150,000 + Rs. 600,000 = Rs. 750,000. So the equation is: Market Cap of 4000 = Sensex value 100 Then, Market cap of 750,000 = ? Ans: today's Sensex value will be 18750.