BSE SENSEX

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The Bombay Stock Exchange

The 'BSE SENSEX' is a value-weighted index composed of 30 stocks and was started on January
1, 1986. The Sensex is regarded as the pulse of the domestic stock markets in India. It consists of
the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay
Stock Exchange. These companies account for around fifty per cent of the market capitalization
of the BSE. The base value of the sensex is 100 on April 1, 1979, and the base year of BSE-
SENSEX is 1978-79.
The BSE SENSEXconsistes of the following companies:
Bajaj Auto Limited, BhartiAirtel Ltd., Bharat Heavy Electricals Ltd., Cipla Ltd., DLF Ltd.,
HDFC, HDFC Bank Ltd., Hero Honda Motors Ltd., Hindalco Industries Ltd., Hindustan
Unilever Ltd., ICICI Bank Ltd., Infosys Technologies Ltd., ITC Ltd., Jaiprakash Associates Ltd.,
Jindal Steel & Power Ltd., Larsen & Toubro Ltd., Mahindra & Mahindra Ltd., Maruti Suzuki
India Ltd., NTPC Ltd., ONGC Ltd., Reliance Industries Ltd., Reliance Communications Ltd.,
Reliance Infrastructure Ltd., State Bank of India, Sterlite Industries (India) Ltd., Tata Motors
Ltd., Tata Power Company Ltd., Tata Steel Ltd., Tata Consultancy Services Ltd., Wipro Ltd., [1]
At regular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its
composition to be sure it reflects current market conditions. The index is calculated based on a
free float capitalization method; a variation of the market cap method. Instead of using a
company's outstanding shares it uses its float, or shares that are readily available for trading. The
free-float method, therefore, does not include restricted stocks, such as those held by promoters,
government and strategic investors.[2]
Initially, the index was calculated based on the ‘full market capitalization’ method. However this
was shifted to the free float method with effect from September 1, 2003. Globally, the free float
market capitalization is regarded as the industry best practice.
As per free float 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. 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 multiplied by a free float factor to
determine the free float market capitalization. Free float factor is also referred as adjustment
factor. Free float factor represent the percentage of shares that are readily available for trading.
The Calculation of Sensex involves dividing the free float market capitalization of 30 companies
in the index by a number called Index divisor.The Divisor is the only link to 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.
The index has increased by over ten times from June 1990 to the present. Using information
from April 1979 onwards, the long-run rate of return on the BSE Sensex works out to be 18.6%
per annum, which translates to roughly 9% per annum after compensating for inflation.[3]

Contents
[hide]
• 1 Sensex milestones
○ 1.1 May 2006
○ 1.2 May 2009
○ 1.3 Effects of the Subprime crisis in the U.S
○ 1.4 Participatory notes issue
○ 1.5 January 2008
• 2 Major crashes since 2000
○ 2.1 May 2006
○ 2.2 Effects of the subprime crisis in the U.S.
○ 2.3 Participatory notes issue
○ 2.4 January 2008
• 3 Companies in the Sensex
• 4 Sensex falls
• 5 References
• 6 External links

[edit] Sensex milestones

Here is a timeline on the rise of the Sensex through Indian stock market history.
• 1000, July 25, 1990 - On July 25, 1990, the Sensex touched the four-digit figure for the
first time and closed at 1,001 in the wake of a good monsoon and excellent corporate
results.
• 2000, January 15, 1992 - On January 15, 1992, the Sensex crossed the 2,000-mark and
closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then
finance minister and current Prime Minister DrManmohan Singh.
• 3000, February 29, 1992 - On February 29, 1992, the Sensex surged past the 3000 mark
in the wake of the market-friendly Budget announced by Manmohan Singh.
• 4000, March 30, 1992 - On March 30, 1992, the Sensex crossed the 4,000-mark and
closed at 4,091 on the expectations of a liberal export-import policy. It was then that the
Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.
• 5000, October 11, 1999 - On October 8, 1999, the Sensex crossed the 5,000-mark as the
BharatiyaJanata Party-led coalition won the majority in the 13th LokSabha election.
• 6000, February 11, 2000 - On February 11, 2000, the information technology boom
helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.
• 7000, June 21, 2005 - On June 20, 2005, the news of the settlement between the Ambani
brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance
Capital and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the
first time.
• 8000, September 8, 2005 - On September 8, 2005, the Bombay Stock Exchange's
benchmark 30-share index – the Sensex - crossed the 8000 level following brisk buying
by foreign and domestic funds in early trading.
• 9000, December 9, 2005 - The Sensex on November 28, 2005 crossed 9000 to touch
9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic
buying spree by foreign institutional investors and well supported by local operators as
well as retail investors.
• 10,000, February 7, 2006 - The Sensex on February 6, 2006 touched 10,003 points
during mid-session. The Sensex finally closed above the 10,000-mark on February 7,
2006.
• 11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed 11,000 and touched a
peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first
time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000
points.
• 12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed 12,000 and touched a
peak of 12,004 points during mid-session at the Bombay Stock Exchange for the first
time.
• 13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 for the first
time. It touched a peak of 13,039.36 and finally closed at 13,024.26.
• 14000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000.
• 15,000, July 6, 2007 - The Sensex on July 6, 2007 crossed 15,000 mark.
 • 16,000, September 19, 2007 - The Sensex on September 19, 2007 crossed the 16,000
mark.
• 17,000, September 26, 2007 - The Sensex on September 26, 2007 crossed the 17,000
mark for the first time.
• 18,000, October 9, 2007 - The Sensex on October 9, 2007 crossed the 18,000 mark for
the first time.
• 19,000, October 15, 2007 - The Sensex on October 15, 2007 crossed the 19,000 mark for
the first time.
• 20,000, October 29, 2007 - The Sensex on October 29, 2007 crossed the 20,000 mark for
the first time.
• 21,000, Jan 08, 2008 - The Sensex on January 8, 2008 touched all time peak of 21078
before closing at 20873.[4]
• November 5, 2010 - The Sensex on November 5, 2010 closes at 21,004.96 with highest
peak in two years.
[edit] May 2006
On May 22, 2006, the Sensex plunged by 1100 points during intra-day trading, leading to the
suspension of trading for the first time since May 17, 2004. The volatility of the Sensex had
caused investors to lose Rs 6 lakhcrore (US$131 billion) within seven trading sessions. The
Finance Minister of India, P. Chidambaram, made an unscheduled press statement when trading
was suspended to assure investors that nothing was wrong with the fundamentals of the
economy, and advised retail investors to stay invested. When trading resumed after the
reassurances of the Reserve Bank of India and the Securities and Exchange Board of India
(SEBI), the Sensex managed to move up 700 points, still 450 points in the red.
The Sensex eventually recovered from the volatility, and on October 16, 2006, the Sensex closed
at an all-time high of 12,928.18 with an intra-day high of 12,953.76. This was a result of
increased confidence in the economy and reports that India's manufacturing sector grew by
11.1% in August 2006.
• 13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 and still
riding high at the Bombay Stock Exchange for the first time. It took 135 days to reach
13,000 from 12,000. And 124 days to reach 13,000 from 12,500. On October 30, 2006 it
touched a peak of 13,039.36 & closed at 13,024.26.
• 14,000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000 and
touched a peak of 14028 at 9.58AM(IST) while opening for the day December 5, 2006.
• 15,000, July 6, 2007- The Sensex on July 6, 2007 crossed another milestone and reached
a magic figure of 15,000. it took almost 7 month and 1 day to touch such a historic
milestone. Coincidentally, Sachin Tendulkar achieved the same mark (15000 runs in
international cricket) around the same time. (A refrain at that time was, "Sachin, make
runs, so that the Sensex rises too!")
[edit] May 2009
On May 18, 2009, the sensex surged 2110.79 points from the previous closing of 12174.42 this
leading to the suspension of trade for the whole day.This event created history in Dalal Street, by
being the first ever time that trade had been suspended for an increase in value. This rally is
primarily due to the victory of the UPA in the 15th General elections. Trading was open for that
day only for 55 seconds. Initially 25 seconds and 30 seconds market reached upper freeze limit
twice in that day itself.
[edit] Effects of the Subprime crisis in the U.S
On Monday July 23, 2007, the Sensex touched a new height of 15,733 points. On July 27, 2007
the Sensex witnessed a huge correction because of selling by Foreign Institutional Investors
(FIIs) and global cues to come back to 15,160 points by noon. Following global cues and heavy
selling in the international markets, the BSE Sensex fell by 615 points in a single day on
Wednesday August 1, 2007.
• 16,000, September 19, 2007- The Sensex (Sensitivity Index) on September 19, 2007
crossed the 16,000 mark and reached a historic peak of 16322 while closing. The bull hits
because of the rate cut of 50 bit/s in the discount rate by the Fed chief Ben Bernanke on
September 26, 2007 crossed the 17,000 mark for the first time, creating a record for the
second fastest 1000 point gain in just 5 trading sessions. It failed however to sustain the
momentum and closed below 17000. The Sensex closed above 17000 for the first time on
the following day. Reliance group has been the main contributor in this bull run,
contributing 256 points. This also helped MukeshAmbani's net worth to grow to over $50
billion or Rs.2 trillion. It was also during this record bull run that the Sensex for the first
time zoomed ahead of the Nikkei of Japan.
• 18,000, October 9, 2007- The Sensex crossed the 18k mark for the first time on October
9, 2007. The journey from 17k to 18k took just 8 trading sessions which is the third
fastest 1000 point rise in the history of the sensex. The sensex closed at 18,280 at the end
of day. This 788 point gain on October 9 was the second biggest single day absolute
gains.
• 19,000, October 15, 2007- The Sensex crossed the 19k mark for the first time on October
15, 2007. It took just 4 days to reach from 18k to 19k. This is the fastest 1000 points rally
ever and also the 640 point rally was the second highest single day rally in absolute
terms. This made it a record 3000 point rally in 17 trading sessions overall.
Therefore the US Subprime crisis has a great effect even on INDIA.gold cross the psychological
barrier.
[edit] Participatory notes issue
On October 16, 2007, SEBI (Securities & Exchange Board of India) proposed curbs on
participatory notes which accounted for roughly 50% of FII investment in 2007. SEBI was not
happy with P-notes because it was not possible to know who owned the underlying securities,
and hedge funds acting through P-notes might therefore cause volatility in the Indian markets.
However the proposals of SEBI were not clear and this led to a knee-jerk crash when the markets
opened on the following day (October 17, 2007). Within a minute of opening trade, the Sensex
crashed by 1744 points or about 9% of its value - the biggest intra-day fall in Indian stock
markets in absolute terms till then. This led to automatic suspension of trade for 1 hour. Finance
Minister P. Chidambaram issued clarifications, in the meantime, that the government was not
against FIIs and was not immediately banning PNs. After the market opened at 10:55 AM, the
index staged a comeback and ended the day at 18715.82, down 336.04 from the last day's close.
This was, however not the end of the volatility. The next day (October 18, 2007), the Sensex
tumbled by 717.43 points — 3.83 per cent — to 17998.39. The slide continued the next day
when the Sensex fell 438.41 points to settle at 17559.98 at the end of the week, after touching the
lowest level of that week at 17226.18 during the day.
After detailed clarifications from the SEBI chief M. Damodaran regarding the new rules, the
market made a 879-point gain on October 23, thus signalling the end of the PN crisis.
• 20,000, October 29, 2007- The Sensex crossed the 20k mark for the first time with a
massive 734.5 point gain but closed below the 20k mark. It took 11 days to reach from
19k to 20k. The journey of the last 10,000 points was covered in just 869 sessions as
against 7,297 sessions taken to touch the 10,000 mark from 1,000 levels. In 2007 alone,
there were six 1,000-point rallies for the Sensex.
• 21,000, January 8, 2008Business Standard
[edit] January 2008
In the third week of January 2008, the Sensex experienced huge falls along with other markets
around the world. On January 21, 2008, the Sensex saw its highest ever loss of 1,408 points at
the end of the session. The Sensex recovered to close at 17,605.40 after it tumbled to the day's
low of 16,963.96, on high volatility as investors panicked following weak global cues amid fears
of a recession in the US.
The next day, the BSE Sensex index went into a free fall. The index hit the lower circuit breaker
in barely a minute after the markets opened at 10 AM. Trading was suspended for an hour. On
reopening at 10.55 AM IST, the market saw its biggest intra-day fall when it hit a low of 15,332,
down 2,273 points. However, after reassurance from the Finance Minister of India, the market
bounced back to close at 16,730 with a loss of 875 points.[5]
Over the course of two days, the BSE Sensex in India dropped from 19,013 on Monday morning
to 16,730 by Tuesday evening or a two day fall of 13.9%.[5]
• 9,975, October 17, 2008 - Sensex crashes below the psychological 5 figure mark of 10K,
following extremely negative global financial indications in US and other countries.
Exactly one year back in October 2007, Sensex had gone past the 20K mark.
• 8701.07, October 24, 2008 lost 10.96% of its value on the intra day trade, the 3rd
highest loss for a one day period in its history
[edit] Major crashes since 2000
[edit] May 2006
On May 22, 2006, the Sensex plunged by 1100 points during intra-day trading, leading to the
suspension of trading for the first time since May 17, 2004. The volatility of the Sensex had
caused investors to lose Rs 6 lakh crore ($131 billion) within seven trading sessions. The Finance
Minister of India, P. Chidambaram, made an unscheduled press statement when trading was
suspended to assure investors that nothing was wrong with the fundamentals of the economy,
and advised retail investors to stay invested. When trading resumed after the reassurances of the
Reserve Bank of India and the Securities and Exchange Board of India (SEBI), the Sensex
managed to move up 700 points, still 450 points in the red.
The Sensex eventually recovered from the volatility, and on October 16, 2006, the Sensex closed
at an all-time high of 12,928.18 with an intra-day high of 12,953.76. This was a result of
increased confidence in the economy and reports that India's manufacturing sector grew by
11.1% in August 2006.
[edit] Effects of the subprime crisis in the U.S.
On July 23, 2007, the Sensex touched a new high of 15,733 points. On July 27, 2007 the Sensex
witnessed a huge correction because of selling by Foreign Institutional Investors and global cues
to come back to 15,160 points by noon. Following global cues and heavy selling in the
international markets, the BSE Sensex fell by 615 points in a single day on August 1, 2007.
[edit] Participatory notes issue
On October 16, 2007, SEBI (Securities & Exchange Board of India) proposed curbs on
participatory notes which accounted for roughly 50% of FII investment in 2007. SEBI was not
happy with P-notes because it was not possible to know who owned the underlying securities[6],
and hedge funds acting through P-notes might therefore cause volatility in the Indian markets[7].
However the proposals of SEBI were not clear and this led to a knee-jerk crash when the markets
opened on the following day (October 17, 2007). Within a minute of opening trade, the Sensex
crashed by 1744 points or about 9% of its value - the biggest intra-day fall in Indian stock
markets in absolute terms till then. This led to automatic suspension of trade for 1 hour. Finance
Minister P. Chidambaram issued clarifications, in the meantime, that the government was not
against FIIs and was not immediately banning PNs. After the market opened at 10:55 AM, the
index staged a comeback and ended the day at 18715.82, down 336.04 from the last day's close.
This was, however not the end of the volatility. The next day (October 18, 2007), the Sensex
tumbled by 717.43 points — 3.83 per cent — to 17998.39. The slide continued the next day
when the Sensex fell 438.41 points to settle at 17559.98 at the end of the week, after touching the
lowest level of that week at 17226.18 during the day.
After detailed clarifications from the SEBI chief M. Damodaran regarding the new rules, the
market made a 879-point gain on October 23, thus signalling the end of the PN crisis.
[edit] January 2008
In the third week of January 2008, the Sensex experienced huge falls along with other markets
around the world. On January 21, 2008, the Sensex saw its highest ever loss of 1,408 points at
the end of the session. The Sensex recovered to close at 17,605.40 after it tumbled to the day's
low of 16,963.96, on high volatility as investors panicked following weak global cues amid fears
of a recession in the US.
The next day, the BSE Sensex index went into a free fall. The index hit the lower circuit breaker
in barely a minute after the markets opened at 10 AM. Trading was suspended for an hour. On
reopening at 10.55 AM IST, the market saw its biggest intra-day fall when it hit a low of 15,332,
down 2,273 points. However, after reassurance from the Finance Minister of India, the market
bounced back to close at 16,730 with a loss of 875 points.[5]
Over the course of two days, the BSE Sensex in India dropped from 19,013 on Monday morning
to 16,730 by Tuesday evening or a two day fall of 13.9%.[5]
[edit] Companies in the Sensex
List of BSE Sensex companies provides the full list of companies that have been part of the BSE
Sensex since its inception in 1986 (baselined to 1979).
(as of Feb 26, 2010) Lifetime highest 3 rises in history (highest rise was in 2009 when second
time upa government won the election)
 Adj. Factor Weight in
Code Name Sector
Index(%)
500410 ACC Housing Related 0.55 0.77

500103 BHEL Capital Goods 0.35 3.26

532454 BhartiAirtel Telecom 0.35 3

532868 DLF Universal Limited Housing related 0.25 1.02

500300 Grasim Industries Diversified 0.75 1.5

500010 HDFC Finance 0.90 5.21

500180 HDFC Bank Finance 0.85 5.03

500182 Hero Honda Motors Ltd. Transport Equipments 0.50 1.43

Metal,Metal Products &

500440 Hindalco Industries Ltd. 0.7 1.75
Mining

500696 Hindustan Lever Limited FMCG 0.50 2.08

532174 ICICI Bank Finance 1.00 7.86

500209 Infosys Information Technology 0.85 10.26

500875 ITC Limited FMCG 0.70 4.99

532532 Jaiprakash Associates Housing Related 0.55 1.25

500510 Larsen & Toubro Capital Goods 0.90 6.85

Mahindra & Mahindra

500520 Transport Equipments 0.75 1.71
Limited

532500 Maruti Suzuki Transport Equipments 0.50 1.71

532541 NIIT Technologies Information Technology 0.15 2.03

532555 NTPC Power 0.15 2.03

500304 NIIT Information Technology 0.15 2.03

500312 ONGC Oil & Gas 0.20 3.87

532712 Reliance Communications Telecom 0.35 0.92

500325 Reliance Industries Oil & Gas 0.50 12.94

500390 Reliance Infrastructure Power 0.65 1.19

500112 State Bank of India Finance 0.45 4.57

Metal, Metal Products, and

500900 Sterlite Industries 0.45 2.39
Mining

Sun Pharmaceutical
524715 Healthcare 0.40 1.03
Industries

532540 Tata Consultancy Services Information Technology 0.25 3.61

500570 Tata Motors Transport Equipments 0.55 1.66

500400 Tata Power Power 0.70 1.63

Metal, Metal Products &

500470 Tata Steel 0.70 2.88
Mining

507685 Wipro Information Technology 0.20 1.61

• DLF replaced Dr. Reddy's Lab on November 19, 2007.

• Jaiprakash Associates Ltd replaced Bajaj Auto Ltd on March 14, 2008.
• Sterlite Industries replaced Ambuja Cements on July 28, 2008.
• Tata Power Company replaced Cipla Ltd. on July 28, 2008.
• Sun Pharmaceutical Industries replaced Satyam Computer Services on January 8, 2009
• Hero Honda Motors Ltd. replaced Ranbaxy on June 29, 2009
• Cipla to replace Sun Pharma from May 3, 2010
• Grasim replaced JSPL in 2010
[edit] Sensex falls
Some major single-day falls of the Sensex have occurred on the following dates [1]:
1. January 21, 2008 --- 1,408.35 points
2. Oct 24, 2008---1070.63 points
3. March 17, 2008 --- 951.03 points
4. July 6, 2009 --- 870 points
5. January 22, 2008 --- 857 points
6. February 11, 2008 --- 833.98 points
7. May 18, 2006 --- 826 points
8. October 10, 2008 --- 800.10 points
9. March 13, 2008 --- 770.63 points
10. December 17, 2007 --- 769.48 points
 11. January 7, 2009 --- 749.05 points
12. March 31, 2007 --- 726.85 points
13. October 6, 2008 --- 724.62 points
14. October 17, 2007 --- 717.43 points
15. September 15, 2008 --- 710.00 points
16. January 18, 2007 --- 687.82 points
17. November 21, 2007 --- 678.18 points
18. August 16, 2007 --- 642.70 points
19. August 17, 2009 --- 626.71 points
20. June 27, 2008 --- 600.00 points
21. February 24, 2011 --- 545.92 points
22. November 12, 2010 --- 432 Points
23. November 16, 2010 --- 444.55 Points
24. February 04, 2011 --- 441.92 Points
25. November 19, 2010 --- 345.20 Points
[edit] References
1. ^http://www.bseindia.com/about/abindices/bse30.asp
2. ^BSE Sensex weighting methodology via Wikinvest
3. ^Handbook of Statistics on Indian Economy
4. ^http://in.rediff.com/money/2008/jan/08sensex.htm
5. ^ abcdrediff Business Bureau (2008-01-21). "The 10 biggest falls in Sensex history".
MarketWatch. http://www.rediff.com/money/2008/jan/21spec1.htm. Retrieved 2008-01-
23.
6. ^"What are P-Notes?". October 17, 2007.
http://www.rediff.com/money/2007/oct/17spec.htm. Retrieved February 21, 2011.
7. ^Vaidyanathan, R. (Oct 24, 2007). "Why Participatory Notes are dangerous". The Hindu.
http://www.thehindubusinessline.in/2007/10/24/stories/2007102450800800.htm.
Retrieved February 22, 2011.
[edit] External links
• Bombay Stock Exchange page for SENSEX
• BSE SENSEX profile at Wikinvest

[show]v·d·e BSE SENSEX companies of India

Bajaj Auto ·Airtel ·BHEL ·Cipla ·DLF ·

·HDFC ·HDFC Bank ·Hero Honda ·Hindalco ·HUL
·ICICI Bank ·Infosys ·ITC ·Jaiprakash
Associates ·Jindal Steel & Power Ltd ·L&T ·Mahindra
& Mahindra ·Maruti ·NTPC ·ONGC ·Reliance
Communications ·Reliance
Infrastructure ·RIL ·SBI ·Sterlite Industries ·TCS ·Tata
Motors ·Tata Steel ·Tata Power ·Wipro

[show]v·d·eMajor Asian stock market indexes

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CSI 300 • Hang Seng • KOSPI • Nikkei 225 • SSC Composite • SZSE Component • Taiwan
Weighted • Topix
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BSE Sensex • KSE 100 • S&P CNX Nifty
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JSX Composite • KLCI • PSEi • STI • SET Index (SET50/SET100)
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ASE Weighted • DFM Index • TASI • TA-100
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How to calculate BSE SENSEX?

Requested by: Lt Col Ashis Kumar Mishra

This article explains how the value of the “BSE Sensex” or “sensitive index” is
calculated. If you are not sure what we mean by the Sensex or what the Sensex is
all about, you can find this out by reading our “How to make money in the stock
market?” article.

The Sensex has a very important function. The Sensex is supposed to be an

indicator of the stocks in the BSE. It is supposed to show whether the stocks are
generally going up, or generally going down.

To show this accurately, the Sensex is calculated taking into consideration stock
prices of 30 different BSE listed companies. It is calculated using the “free-float
market capitalization” method. This is a world wide accepted method as one of the
best methods for calculating a stock market index.

Please note: The method used for calculating the Sensex and the 30 companies that
are taken into consideration are changed from time to time. This is done to make
the Sensex an accurate index and so that it represents the BSE stocks properly.

To really understand how the Sensex is calculated, you simply need to understand
what the term “free-float market capitalization” means. (As we said earlier, the
Sensex is calculated on basis of the “free-float market capitalization” method) But,
before we understand what “free-float market capitalization” means, you first need
to understand what “market capitalization” means.

Next - What is "market capitalization"? >>

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1. How to calculate BSE SENSEX? - Introduction

2. What is "market capitalization"?

3. What is "free-float"?

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What is "market capitalization"?
You probably think that you have never heard of the term “market capitalization” before. You
have! When you are talking about “mid-cap”, “small-cap” and “large-cap” stocks, you are
talking about market capitalization!

Market cap or market capitalization is simply the worth of a company in terms of it’s shares! To
put it in a simple way, if you were to buy all the shares of a particular company, what is the
amount you would have to pay? That amount is called the “market capitalization”!

To calculate the market cap of a particular company, simply multiply the “current share price” by
the “number of shares issued by the company”! Just to give you an idea, ONGC, has a market
cap of “Rs.170,705.21 Cr” (when this article was written)

Depending on the value of the market cap, the company will either be a “mid-cap” or “large-cap”
or “small-cap” company! Now the question is, how do YOU calculate the market cap of a
particular company? You don’t! Just go to a website like MoneyControl.com and look up the
company whose market cap you are interested in finding out! The figure in front of “Mkt. Cap”
will be the market cap value.

Having seen what market cap is and how to find out the market cap of a particular company, let
us try to understand the concept of “free-float market cap”

Next - What is "free float market cap"? >>

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Table Of Contents
1. How to calculate BSE SENSEX? - Introduction
2. What is "market capitalization"?
3. What is "free-float"?
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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 FDI’s etc. etc!

Now, only the “open market” shares that are free for trading by anyone, 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.
A company has to submit a complete report about “who has how many of the company’s shares”
to the BSE. On the basis of this, the BSE will decide the “free-float factor” of the company. The
“free-float factor” is a very valuable number! If you multiply the "free-float factor" with the
“market cap” of that company, you will get the “free-float market cap” which is the value of the
shares of the company in the open market!
A simple way to understand the “free-float market cap” would be, the total cost of buying all the
shares in the open market!

So, having understood what the “free float market cap” is, now what? How do you find out the
value of the Sensex at a particular point? Well, it’s pretty simple….
First: Find out the “free-float market cap” of all the 30 companies that make up the Sensex!

Second: Add all the “free-float market cap’s” of all the 30 companies!

Third: Make all this relative to the Sensex base. The value you get is the Sensex value!

The “third” step probably confused you. To understand it, you will need to understand “ratios
and proportions” from 5th standard mathematics. Think of it this way:

Suppose, for a “free-float market cap” of Rs.100,000 Cr... the Sensex value is 4000…
Then, for a “free-float market cap” of Rs.150,000 Cr... the Sensex value will be..

So, the Sensex value will be 6000 if the “free-float market cap” comes to Rs.150,000 Cr!

Please Note: Every time one of the 30 companies has a “stock split” or a "bonus" etc. appropriate
changes are made in the “market cap” calculations.

Now, there is only one question left to be answered, which 30 companies, why those 30
companies, why no other companies?

The 30 companies that make up the Sensex are selected and reviewed from time to time by an
“index committee”. This “index committee” is made up of academicians, mutual fund managers,
finance journalists, independent governing board members and other participants in the financial
markets.

The main criteria for selecting the 30 stocks is as follows:

Market capitalization: The company should have a market capitalization in the Top 100 market
capitalization’s of the BSE. Also the market capitalization of each company should be more than
0.5% of the total market capitalization of the Index.

Trading frequency: The company to be included should have been traded on each and every
trading day for the last one year. Exceptions can be made for extreme reasons like share
suspension etc.
Number of trades: The scrip should be among the top 150 companies listed by average number
of trades per day for the last one year.

Industry representation: The companies should be leaders in their industry group.

Listed history: The companies should have a listing history of at least one year on BSE.

Track record: In the opinion of the index committee, the company should have an acceptable
track record.
Having understood all this, you now know how the Sensex is calculated.
Jai Hind.

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How to incorporate?

Table Of Contents
1. How to calculate BSE SENSEX? - Introduction
2. What is "market capitalization"?
3. What is "free-float"?
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How to make money in the stock market?
Inroduction
This article is a COMPLETE guide to the basics of making money in the stock market! If you are
considering investing in the stock market, you MUST read this article! We have explained all the
concepts and talked about all the "myths" that people have about the stock market!
What are stocks? Definition:
Plain and simple, a “stock” is a share in the ownership of a company.

A stock represents a claim on the company's assets and earnings. As you acquire more stocks,
your ownership stake in the company becomes greater.

Note: Some times different words like shares, equity, stocks etc. are used. All these words mean
the same thing.

So what does ownership of a company give you?

Holding a company's stock means that you are one of the many owners (shareholders) of a
company and, as such, you have a claim to everything the company owns.

This means that technically you own a tiny little piece of all the furniture, every trademark, and
every contract of the company. As an owner, you are entitled to your share of the company's
earnings as well.

These earnings will be given to you. These earnings are called “dividends” and are given to the
shareholders from time to time.

A stock is represented by a "stock certificate". This is a piece of paper that is proof of your
ownership. However, now-a-days you could also have a “demat” account. This means that there
will be no “stock certificates”. Everything will be done though the computer electronically.
Selling and buying stocks can be done just by a few clicks.

Being a shareholder of a public company does not mean you have a say in the day-to-day
running of the business. Instead, “one vote per share” to elect the board of directors of the
company at annual meetings is all you can do. For instance, being a Microsoft shareholder
doesn't mean you can call up Bill Gates and tell him how you think the company should be run.

The management of the company is supposed to increase the value of the firm for shareholders.
If this doesn't happen, the shareholders can vote to have the management removed. In reality,
individual investors like you and I don't own enough shares to have a material influence on the
company. It's really the big boys like large institutional investors and billionaire entrepreneurs
who make the decisions.

For ordinary shareholders, not being able to manage the company isn't such a big deal. After all,
the idea is that you don't want to have to work to make money, right? The importance of being a
shareholder is that you are entitled to a portion of the company’s profits and have a claim on
assets.

Profits are sometimes paid out in the form of dividends as mentioned earlier. The more shares
you own, the larger the portion of the profits you get. Your claim on assets is only relevant if a
company goes bankrupt. In case of liquidation, you'll receive what's left after all the creditors
have been paid.

Another extremely important feature of stock is "limited liability", which means that, as an
owner of a stock, you are "not personally liable" if the company is not able to pay its debts.

In other legal structures such as partnerships, if the partnership firm goes bankrupt the creditors
can come after the partners “personally” and sell off their house, car, furniture, etc. To
understand all this in more detail you could read our “How to incorporate?” article.

Owning stock means that, no matter what happens to the company, the maximum value you can
lose is the value of your stocks. Even if a company of which you are a shareholder goes
bankrupt, you can never lose your personal assets.
Why would the founders share the profits with thousands of people when they could keep profits
to themselves? This is the obvious question that comes up next. This what the next section is all
about!

Next - Why do companies issue stocks? >>

Other articles YOU may like...

How to start a company?
How to make money in the stock market?
How to manage your money?
How to manage time?
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Table Of Contents
1. What are stocks?
2. Why do companies issue stocks?
3. What causes stock prices to change?
4. What are the Sensex and the Nifty?
5. 3 important things that every investor MUST remember!!
6. How to decide which stocks to buy?
7. Basics of fundamental analysis!
8. Earnings per share (EPS) ratio and what it means?
9. Price to earnings (P/E) ratio and what it means?
10. PEG ratio and what it means?
11. Inflation and how it silently eats your money!
 12. Brokerage and taxation…
Please note that all information on our site is subject to our "Disclaimer"

Sensex is calculated using the “Free-float Market Capitalization” methodology. Instead of using
a company’s outstanding shares it uses its float, or shares that are readily available for trading.
All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-float
methodology.
It is calculated taking into consideration prices of 30 largest and most actively traded stocks of
the BSE listed companies. These shares make more than 50% of the total market capitalization in
the BSE market.
The formula for calculating the SENSEX = (Sum of free flow market cap of 30 biggest stocks
of BSE)*Index Value in 1978-79/Market Cap Value in 1978-79.
Note: The base value (index value) of the Sensex is 100 on April 1, 1979, and the base year of
BSE-SENSEX is 1978-79.
Example:
Suppose the Index consists of only 2 stocks: Stock A and Stock B.
Stock A has 1000 shares out of which 200 are held by the promoters and only 800 shares are
available for trading to the general public. These 800 shares are the so-called ‘free-floating’
shares.
Similarly, Stock B has 2,000 shares out of which 1000 are held by promoters and 1000 are
available for trading (free-floating).
Assume price of Stock A is Rs.100. The total market capitalisation of Stock A is Rs 1,00,000
(1,000 x 100) and its free-float market capitalisation is Rs 80,000 (800 x 100).
Assume price of Stock B is Rs.200. The total market capitalisation of Stock B is Rs 4,00,000
(2,000 x 200) and its free-float market capitalisation is Rs 2,00,000 (1000 x 200).
Then sum of free float market cap of these 2 companies (A & B) = (800*100+1000*200) =
80000+200000 = Rs. 280000
Assume Market Cap during the year 1978-79 was Rs.50,000
Apply formula
Then SENSEX = 280000*100/50,000 = 560.
Use same method for calculating NSE Nifty
• Base year is 1995 and base value (index value) is 1000.
• NIFTY is calculated based on 50 stocks.
The formula for calculating the Nifty = (Sum of free flow market cap of 50 biggest stocks of
NSE)*Index Value in 1995/Market Cap Value in 1995.