BSE Sensex

How is BSE Sensex Value Calculated?

Initially, when the index was launched in 1986, the method used for calculating Sensex was the full market capitalisation method. As a result, all the shares, whether available for active trading or not, were included. From September 1st, 2003, onwards, the method was changed to float-adjusted market capitalisation.

So, the Sensex value is calculated on a float-adjusted basis. What does float-adjusted mean? It simply means that the market capitalisation of a company is multiplied by the float factor, i.e., the percentage of total shares available for free trading in the stock markets. Free float excludes the shares held by employees, promoters, government, etc. that are not readily traded.

For example, assume Company X has a total number of issued shares of ₹10 lakh in the market. Out of these shares, only 70% of the shares are freely tradeable on the stock exchange. Suppose the market price of a share is ₹1,000. This is how Sensex will calculate the free-float market capitalisation of the company:

To calculate the value of Sensex today live, the free-float market capitalisation of all the 30 companies is added. Then the value is adjusted with the base index value of 1978-79. The base value of the BSE Sensex in 1979 was 100. So, the formula used is:

Value of Sensex = (Total free float market capitalisation/ Base free float market capitalisation) * Base period index value

Where,

Base period index value is 100, from 1978-79

The constituents of Sensex are also changed every 6 months in June and December based on their average free-float market capitalisation and average traded value during the last 6 months.

Selection Criteria for Scrips on BSE Sensex

The companies in BSE Sensex are added or deleted semiannually in June and December when the index is reviewed. But what are the criteria for the selection of these 30 companies? Take a note:

1. The companies should be listed on the BSE (for at least 6 months).
2. The companies must be traded daily on BSE during the last 6 months, i.e., high liquidity.
3. The companies should have a large or mega-market capitalisation. Here, large market cap means having market capitalisation between ₹7,000 crore and ₹20,000 crore and mega-cap means having market cap of over ₹20,000 crore.
4. Revenue of these companies must be generated from the core activities.