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What is Sensex? How is it Search

calculated?
by J Victor on August 2nd, 2010 Beginner's Lessons
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Investing Basics

Shares & Stock Markets

Introduction to Financial Statements

Financial ratios.

Stock investing strategies

Technical Analysis I

Technical analysis II

Before Picking up stocks..

SENSEX
Choosing a Broker and opening Demat
The SENSEX-(or SENSitve indEX) was introduced by the Bombay stock exchange on Accounts
January 1 1986. It is one of the prominent stock market indexes in India. The Sensex is
designed to re ect the overall market sentiments. It comprises of 30 stocks. These are Make your debut !!

large, well-established and nancially sound companies from main sectors. More ... from stock markets.

METHOD ADOPTED FOR SENSEX CACULATION Valuation of shares

Futures and Options - The basics.

The method adopted for calculating Sensex is the market capitalisation weighted
method in which weights are assigned according to the size of the company. Larger the
size, higher the weightage. Most Recent
The base year of Sensex is 1978-79 and the base index value is set to 100 for that The week ahead:awaiting an eventful
period. week…

WHY IS THE BASE VALUE SET TO 100 POINTS? F&O settlement and Budget
expectations to drive the markets ..
The total value of shares in the market at the time of index construction is assumed to
The week ahead: Q3 and the budget
be ’100′ in terms of ‘points’. This is for the purpose of ease of calculation and to logically expectations to dictate the market
represent the change in terms of percentage. So, next  day, if the market capitalization moves.
moves up 10%, the index also moves 10% to 110.
The week ahead: Q3 earnings to dictate
the trend.
HOW ARE THE STOCKS SELECTED?
The year ahead : What’s in store for
2018?
The stocks are selected based on a lot of qualitative and quantitative criterias. You can
view the listing criteria here. Results and geopolitical issues will
dictate market moves…
HOW IS THE INDEX CONSTRUCTED?

The construction technique of index is quite easy to understand if we assume that there About Jins Victor
is only one stock in the market. In that case, the base value is set to 100 and let’s
assume that the stock is currently trading at 200. Tomorrow the price hits 260 (30%
increase in price) so, the index will move from 100 to 130 to indicate that 30% growth.
Now let’s assume that on day 3, the stock nishes at 208. That’s a 20% fall from 260. So,
to indicate that fall, the Sensex will be corrected from 130 to 104(20%fall).

As our second step to understand the index calculation, let us try to extend the same Jins Victor is the founder of
logic to two stocks – A and B. A is trading at 200 and let’s assume that the second stock www.sharemarketschool.com, a
‘B’ is trading at 150. Since the Sensex follows the market capitalization weighted website for share market enthusiasts.
method, we have to nd the market capitalization (or size of the company- in terms of Based in Kochi, he heads one of the
price) of the two companies and proportionate weightage will have to be given in the leading nancial consultancy rms in
calculation. Kerala. He is an avid follower of stock
markets and invests in his own
How do we compute size of the company- in terms of price? account. Through this website, he
shares his experiences and knowledge
That’s simple. Just multiply the total number of shares of the company by the market and teaches how to make money from
price. This gure is technically called ‘market capitalization’. share markets using solid rules.

Back to our example-

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We assume that company A has 100,000 shares outstanding and B has 200,000 shares
outstanding. Hence, the total market capitalization is (200 x 100000 + 150 x 200000) Rs You can get the latest posts delivered
500 lakhs. This will be equivalent to 100 points. to you for free via Email or RSS

Lets assume that tomorrow, the price of A hits 260 (30% increase in price) and the price
of B hits 135. (10% drop in price).  The market capitalization will have to be reworked. It [email protected]
would be – 260 x 100,000 + 135 x 200,000 = 530 lakhs. That means, due to the changes
in price, the market capitalization has moved from 500 lakhs to 530 indicating a 6%
increase. Hence, the index would move from 100 to 106 to indicate the net e ect.

This logic is extended to many selected stocks and this calculation process is done every
minute and that’s how the index moves!

CALCULATION OF SENSEX.

What we said was the general method to construct indices. Since, the Sensex consists of
30 large companies and since it’s shares may be held by the government or promoters
etc, for the purpose of calculating market capitalization only the free oat market value
is considered, instead of the total number of shares.

What is free oat?

That’s the total number of shares available for the public to trade in the market. It
excludes shares held by promoters, governments or trusts, FDIs etc..
To nd the free oat market value, the total value of the company (total shares x
market price) is further multiplied by a free oat market value factor, which is
nothing but the percentage of free oat shares of a particular company.

So logically, the company which has more public holding will have the highest free
oat factor in the Sensex. This equalizes everything.
Example- let’s assume that the market value of a company is Rs 100,000 Crore and  it
has 100 Crore shares having a value of Rs 1,000 each but only 20% of it are available
to the public for trade. The free oat factor would be 20/100 or 0.20 and the free
oat market value would be .20 x 100,000 = 20,000 Crores.
You need not calculate the free oat market capitalization since its available straight
on the BSE website – Click this link to get it.

NOW, LET’S SE HOW THE SENSEX MOVES.

Sensex value = Current free- oat market value of constituents stocks/Index Divisor

So, the numerator is available straight from the BSE site. It’s the total of free oat
factors of 30 stocks x market capitalization.

NOW, THE DENOMINATOR.

The index divisor nothing but the present level of index.

So, now, we have all the gures.

Lets assume that the   free- oat market capitalisation is Rs 10,00,000 Crore. At that
point, the Sensex is at 12500. What would be the value of Sensex if the free- oat market
capitalization is Rs 11,50,000 Crore?

(Those who can’t nd the answer may go back to the ratios and proportions chapter
elsewhere in school text book)

……..The answer is 14,375.

You may like these posts:

1. What is a stock index?

2. Stock markets in india
3. BSE stock classi cations

99 Responses to “What is Sensex? How is it Leave a response

calculated?”

Pushpendra tiwari
June 21, 2011 at 1:00 am

How to buy a share, and what’s the idial investment for frist time.

Kassi
September 21, 2011 at 3:10 am

Keep on writing

Elida
September 21, 2011 at 8:01 pm

Big help, big help.

TANMOY
March 16, 2012 at 12:14 pm

great work Jins. no doubt if basics are strong, we can sail a long way.

priya
June 27, 2012 at 4:42 pm

good

J Victor
June 28, 2012 at 6:00 pm

thanx
Prateesh
August 20, 2012 at 3:30 pm

Hello.. I had a question If I say that there is an “UNEVEN FLUCTUATION IN INDIAN

STOCK MARKET”.. Am I saying it right by saying UNEVEN? How would you react to
such a statement?

J Victor
August 20, 2012 at 6:03 pm

The language is confusing. It could mean that the market is volatile. The word
‘uneven’ may mean that there is lack of direction or biasedness.

mANAN
September 19, 2012 at 7:57 pm

thanxxx nice 2 understand

Ankyt
December 4, 2012 at 12:52 am

thanx bhaiya..

Bharath
March 4, 2013 at 10:57 pm

Its really easy to understand….

pallavi
March 6, 2013 at 9:20 pm

thank you sir , its really useful,and i like the way you explained

yogesha
March 26, 2013 at 12:13 pm

thank u bhaiya

mintu
June 4, 2013 at 11:41 pm

great…now its very easy 2 understand….:D

sudhindra
July 1, 2013 at 11:01 am

Great work mr victor. All the very best to your future endeavours.

J Victor
July 1, 2013 at 11:05 am
thankyou

Ravi
July 1, 2013 at 1:21 pm

its good and help to know about sensex keep it up….

Pari
July 12, 2013 at 12:40 pm

Thanks a lot:-))

Tushar
July 23, 2013 at 11:19 pm

very informative and crisp writing. going to recommend to my whole class

tomorrow.

Sai Sudheesh
July 30, 2013 at 11:01 am

short and sweet capsule of information …good job !! thanks !!

Tanveer
August 29, 2013 at 2:43 pm

The concerned concept is written in very simple tone so that an ordinary individual
can also comprehend it with out much hindrance.

Robin
September 19, 2013 at 5:51 pm

Jins , you are Good , May GOD give you the skills to explain the basics in such an
easy way as you do. Good Work.

trilok
September 29, 2013 at 6:51 pm

am thankful to this blog for giving a valuable information

kashyap
October 21, 2013 at 7:44 am

Thank you! Explained clearly!

ravi
December 24, 2013 at 5:18 pm

very useful
v.ashok
January 3, 2014 at 2:15 pm

Tanks for your valuable advice

v.ashok
January 3, 2014 at 2:20 pm

Tanks a lot

Roshni
January 7, 2014 at 8:53 am

Nicely explained.

Thanks very much.

Franklin
January 10, 2014 at 1:53 pm

very nice hatt’s o :)

Akmal Ansari
January 17, 2014 at 2:58 pm

It very nice to understand the concept of index, Thanks a lot

veerangna
January 18, 2014 at 5:52 pm

thanks for such a helping information………this is really good

Hitesh
April 3, 2014 at 7:53 pm

It was really helpful. Please give details about Put & Call used in stock market.

sourav saha
May 4, 2014 at 12:51 pm

Its my initial stage but this page has really proved to be useful for me.

sourav saha
May 4, 2014 at 12:54 pm

Its my initial stage but this page is really useful.

seeta
May 31, 2014 at 2:26 am

Very well explained. Each chapter is so neat;y choreographed and interesting.

anurag
June 15, 2014 at 11:49 am

very well explained sir…….. thank you

supriya
July 5, 2014 at 10:47 pm

It’s really informative

sourav Majhi
July 19, 2014 at 10:58 am

thank you

mayur
July 19, 2014 at 9:22 pm

Its awesome informtion…thanx alot…

anusha
July 23, 2014 at 9:40 am

very well explained thanks alot

supreeth
July 26, 2014 at 2:37 pm

thanks a lot,very much helpful…..

deepak
July 26, 2014 at 9:32 pm

thanks, this information is good thank yoy…..

ganga
August 25, 2014 at 12:07 pm

Very nice.

manjunath kittur
August 29, 2014 at 5:23 pm

Thanks it is easy to understand

deepak
September 15, 2014 at 12:31 am

Thank you
Rojith
October 11, 2014 at 9:51 am

Partially understood

Manu
October 11, 2014 at 1:09 pm

Thank You For that

bhupat
December 1, 2014 at 8:14 am

thank sir

gurram prasad
December 1, 2014 at 1:33 pm

very nice about explanation

Neha Mittal
December 6, 2014 at 4:26 pm

Really informative thnxx…:)

nimish
December 9, 2014 at 4:57 pm

Thanks it is easy to understand

Kurian Vaidian
December 12, 2014 at 6:01 pm

It is very useful for investors to understand the basic things about stock market.

Mallikarjun
December 13, 2014 at 1:30 pm

really helpful!
thanks

Jose
December 16, 2014 at 10:46 am

thanx….

uday
December 17, 2014 at 10:39 am

thank u very much for the website

shahid
January 2, 2015 at 11:42 am

thank u sir for the explanation u o ered is very easy to understand even for the
ordinary individual about the core point to make investment in stock exchange

nazneen
January 3, 2015 at 5:33 pm

Thank u sir it has helped me to gain knowledge and even to do my project on

sensex….:-)

rohit
January 27, 2015 at 7:57 am

thank u sir….

neelam
February 14, 2015 at 11:13 pm

Thanks Victor

Ravi Dhingani
May 3, 2015 at 12:36 pm

it is really very easy to understand, as of now i have rade so many articles for
sensex calculation but not got satis ed answers, but after reading this info i totally
come to know how to calculate sensex and all.

Thanks,

sri
June 7, 2015 at 6:31 pm

thank u very much

sourav
June 20, 2015 at 7:52 pm

Amazingly done

sunil chauhan
June 27, 2015 at 10:58 am

it really great

Abhijit Ray
June 27, 2015 at 11:13 pm

Thanks for good explanations and keep on writing.

Lavanya Bhardwaj
July 12, 2015 at 3:31 pm

Thank you so much for the help

karthikeyan
July 18, 2015 at 1:23 am

Pinpoint explanations, very well explained for the beginners, Thank you for
sharing.
Please keep on writing.

ABHIJIT PAL
July 26, 2015 at 6:27 pm

THANKS FOR EXPLAINING THE MOST COMPLICATED CALCULATIONS OF SENSEX IN

A SIMPLE WAY WHICH HELPS ME A LOT TO UNDERSTNAD THE CLACULATIONS

Pradeep
July 27, 2015 at 12:01 am

Its well explained step by step with ease examples …easy to digest and
understand…
Well said and best of luck for future….

Nilesh
September 7, 2015 at 7:53 pm

Thanks a lot !!
Nice explanation…

Dibyendu Pal
September 8, 2015 at 12:58 pm

Thanks a lot for giving knoledge about sensex

Badgujar
October 1, 2015 at 10:54 pm

now i understood the sensex properly

vinod
October 3, 2015 at 8:16 am

thank you very much it is easy to understand

mahendra
January 17, 2016 at 9:44 am

Its too good information

sanjeebosh
January 17, 2016 at 8:55 pm

Thanks a lot .very well exaplained

Amitabh singh
January 24, 2016 at 8:13 pm

very good explained.

Sagar rathod
February 5, 2016 at 1:46 pm

Thanks sir,very useful for business knowledge

Vignesh
February 25, 2016 at 2:58 pm

Awesome… I’m struggling from several months to clearly understand the Index
and Sensex. Finally I got it here with excellent explanations with perfect
examples….
Thanks a lot..

aarati
February 26, 2016 at 12:16 pm

Nice to easy understanding

B.N.Panda
March 25, 2016 at 9:49 am

Thank you sir I have c learly understood the index construction

Sasidhar
March 26, 2016 at 9:12 am

It is Easy to learn

tripura
March 27, 2016 at 9:36 pm

thank u

Kirti
April 17, 2016 at 1:11 pm

Well explained…easy to understand the concept of sensex nd how it would be

calculated.
s k de
April 21, 2016 at 1:03 pm

I’ve been struggling to understand these things for long time. I questioned many
managemet students. They unnecessarily confuse. Here is an explanation that
clears every doubt. The example has made it amply clear. I’m grateful and thank
you ver much.

J Victor
April 25, 2016 at 8:20 am

thankyou !!

s.vijaay
April 30, 2016 at 9:46 am

Gurubhyom Namaha

ShanPalaniRam
June 8, 2016 at 11:43 pm

Excellent walk through!! Thanks !!!

vijay
June 10, 2016 at 9:57 am

verry good understanding

Muhammed Fizel
June 15, 2016 at 7:29 am

Excellent walk through!!

Prasad Arak
June 24, 2016 at 5:54 pm

Nice way to explain. Short but exhaustive.

sandhya
June 26, 2016 at 11:21 am

thankyou so much sir… u explain better than my college pro essors.. it was very
helpful. y dont u create an app so that it would be easy to access? because i love
ur website.. thanku again

prakash
July 23, 2016 at 11:06 pm

good explanation,satici ed.

 Deepak
July 30, 2016 at 9:57 pm

Well Explained. Easy to Understand. Thanks

Ishan
August 6, 2016 at 5:42 pm

Can someone help me to nd the answer of question that is on the last

Pavan rai
August 7, 2016 at 1:04 pm

thanks for gud explain…..

Prashant Singh
September 9, 2016 at 5:50 pm

Nice explanation JINS.

Nisar
October 1, 2016 at 5:17 pm

Thaanks. For a beginer to understand. Its very easily and nicely explained.

harihar
November 3, 2016 at 12:34 am

Very gud explaination

Aditya
November 11, 2016 at 12:38 pm

How sensex value is going to help anyone in trading of shares ?

Varadaraju
January 14, 2018 at 9:49 pm

An excellent scenario presented! Simple calculations, lucid narration, compact

answers

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