What is Sensex and how it has been calculated?
May 24, 2021
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The stock market index is the only thing that will help in tracking the changes into the stock market and is created by picking up the list of securities on the stock exchange. The criteria for choosing the stocks for the stock market index can be the market capitalisation or the industry and even though the stocks chosen are limited, still they will be representing the entire Indian stock market. Any changes in the prices of these kinds of stocks will affect the entire market index. Hence, individuals need to be clear about the indexes like Sensex. The stock market analyst Mr. Deepak came out with the term Sensex which is the combination of sensitivity and index. The Sensex is the index that reflects the Bombay Stock Exchange and comprises 30 stocks listed on BSE. The stocks are the largest and most actively traded stocks on the BSE and the criteria for the stock selection have been mentioned as follows:1. It must be listed on the Bombay Stock Exchange
2. It should be large to the mega capital stock
3. It should be a relatively liquid stock
4. The revenue generated from the core should be there
5. It should be a diversified as well as balanced sector involvement associated with this particular stock.
The Sensex will reflect the movements into the Indian stock market and if it will increase the prices of the underlying 30 stocks will also increase and vice versa. Sensex is the oldest index in India and people consider it to be the true reflection of the Indian economy. Different kinds of market research analysts also refer the Sensex to understand the overall growth, developments in the industry, stock market trend of the country and several other kinds of things.
How is the Sensex calculated?
The Sensex was earlier calculated with the help of the weighted market capitalisation method but now it is dependent upon the free-float market capitalisation method. The very first step is to determine the free-float market capitalisation of the 30 companies from the index.
Free float market capitalisation = market capitalisation * free flow factor.
The free flow factor will be the percentage of total sales of a company issues and will be readily available to the common public to trade. It will also make sure that the total of sending shares of the company or same in terms of meeting. The market capitalisation has been calculated as follows:
Market capitalisation = share price per share * number of shares issued by the company.
Being aware of the stock market index is like Sensex and nifty is very much important for the investors because these are the clear cut indicators of different kinds of things associated with the performance of stocks. It helps in the most adequate stock picking, very much helpful for beginners and is very much true in terms of reflecting the sentiments of the investors so that concerned people can make the right kind of decisions. Hence, depending upon professionals in the field like 5paisa is very much important for the people so that they can indulge in data-driven decisions all the time.
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