BSE sensex is one of the famous indicator in world of stock market. BSE sensex stands for Bombay stock exchange sensitive index. Which includes top 30 companies listed in BSE. These 30 companies are selected from different sectors of the industry. Sensex indicator is one of the main indicator which tells how overall stock market in India is heading to.
BSE sensex compilation is follows the same procedure as that of Standard and poor’s compilation process for USA markets. The index is calculated as per the percentage of the aggregated market value of the equity shares of all the companies in the sample on that day to the average market value of the equity shares of the same companies during the base period.
Sensex calculation method has been changed to “Free-floating market capitalization” method in 2003. As per the new method instead of considering outstanding shares, it considers the readily availability of shares for trading. So, this method as can be easily understandable, doesn’t include restricted stocks which are not being actively traded.
The BSE website tells that it use free float market capitalization method to calculate the sensex, in which the index points to the free float market value of scrips listed in the group of sensex. As you know market capitalization is easily understandable i.e. 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 value of the Sensex is 100 on April 1, 1979, and the base year of BSE-SENSEX is 1978-79 which is often indicated by the notation 1978-79= 100. SENSEX involves dividing the free-floating market capitalization of 30 companies in the index by a number called Index Divisor. The Divisor links the original base period value of the SENSEX. It keeps the index comparable over time and is the reference point for all index adjustments arising out due to various fiscal activities in the market.
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