Sensex index is based on a free float capitalization method, which is a variation of the previous market capitalization method.
Ever time we heard of the word “sensex” the first co-related word which blink in our mind, is the part of shares and its growth. Gradually, the word “sensex” means sensitive index, the index of the Bombay Stock Exchange (BSE), which was started in 1857. it is a free-float market-weighted stock market index of 30 well established and financially strong companies which all come under the BSE. These respective industries are the most renowned and well established companies which represent the real Indian economy and its share.
The word ‘sens’ was coined by Deepak Mohoni, a stock market analyst; the sensex is known for its rise and falls as its increase is directly proportional to the growth of Indian economy. Also, the term is generally used by everyone in India in their day-to-day lives. India gaining and rising towards the development of economy is all based on its sensex values and stock market.
The “sensex” calculation is totally based on Market capitalization. Now, the question arises; what exactly is market capitalization? Market capitalization is an estimate value of a business which is obtained by multiplying the number of shares outstands to the current price of a share.
Initially, sensex was calculated by the Full Market Capitalization methodology; which was further changed to Free-float methodology. According to which it is found that the level of index at any instance of time would reflect the Free-float market value of 30 component stocks relative to a base period. Today, almost all the major index providers such as the MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology. Some of the top Indian companies contributing their share in the sensex are Housing Development Finance Corporation, Cipla Pharmaceuticals, Bharat Heavy Electricals, State Bank Of India, HDFC Bank, Infosys Information Technology,Oil and Natura, Gas Corporation, Reliance Industries, Tata Powerand etc.
Hence, the sensex can be represented by a formula:
(Sum of Free Float Market Capital / Base Market Capital ) x 100