How to calculate BSE SENSEX? (from indiahowto.
com )
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.
Q. 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”.
Depending on the value of the market cap, the company will either be a “mid-cap” or “large-cap”
or “small-cap” company.
