MF0010– Q.2 From the website of BSE India, explain how the BSE Sensex is calculated.

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Answer:
SENSEX:
Sensex is the stock market index for BSE. It was first compiled in 1986. It is made of 30 stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100.

The Bombay Stock Exchange SENSEX (acronym of Sensitive Index) more commonly referred to as SENSEX or BSE 30 is a free-float market capitalization-weighted index of 30 well-established and financially sound companies listed on Bombay Stock Exchange. The 30 component companies which are some of the largest and most actively traded stocks, are representative of various industrial sectors of the Indian economy. Published since January 1, 1986, the SENSEX is regarded as the pulse of the domestic stock markets in India. The base value of the SENSEX is taken as 100 on April 1, 1979, and its base year as 1978-79. On 25 July, 2001 BSE launched DOLLEX-30, a dollar-linked version of SENSEX. As of 21 April 2011, the market capitalisation of SENSEX was about 29,733 billion (US$660 billion) (42.34% of market capitalization of BSE), while its free-float market capitalization was 15,690 billion (US$348 billion).

The Bombay Stock Exchange (BSE) regularly reviews and modifies its composition to be sure it reflects current market conditions. The index is calculated based on a free float capitalization method—a variation of the market capitalisation method. Instead of using a company’s outstanding shares it uses its float, or shares that are readily available for trading. The free-float method, therefore, does not include restricted stocks, such as those held by promoters, government and strategic investors.
Initially, the index was calculated based on the ‘full market capitalization’ method. However this was shifted to the free float method with effect from September 1, 2003. Globally, the free float market capitalization is regarded as the industry best practice.
As per free float capitalization methodology, the level of index at any point of time reflects the free float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is multiplied by a free float factor to determine the free float market capitalization. Free float factor is also referred as adjustment factor. Free float factor represent the percentage of shares that are readily available for trading.
The calculation of SENSEX involves dividing the free float market capitalization of 30 companies in the index by a number called index divisor.The divisor is the only link to original base period value of the SENSEX. It keeps the index comparable over time and is the adjustment point for all index adjustments arising out of corporate actions, replacement of scrips, etc.
The index has increased by over ten times from June 1990 to the present. Using information from April 1979 onwards, the long-run rate of return on the BSE SENSEX works out to be 18.6% per annum, which translates to roughly 9% per annum after compensating for inflation.
Following is the list of the component companies of SENSEX as on Feb 26, 2010.
Code Name Sector Adj. Factor Weight in Index(%)
500410 ACC Housing Related 0.55 0.77
500103 BHEL Capital Goods 0.35 3.26
532454 Bharti Airtel Telecom 0.35 3
532868 DLF Universal Limited Housing related 0.25 1.02
500300 Grasim Industries Diversified 0.75 1.5
500010 HDFC Finance 0.90 5.21
500180 HDFC Bank Finance 0.85 5.03
500182 Hero Honda Motors Ltd. Transport Equipments 0.50 1.43
500440 Hindalco Industries Ltd. Metal,Metal Products & Mining 0.7 1.75
500696 Hindustan Lever Limited FMCG 0.50 2.08
532174 ICICI Bank Finance 1.00 7.86
500209 Infosys Information Technology 0.85 10.26
500875 ITC Limited FMCG 0.70 4.99
532532 Jaiprakash Associates Housing Related 0.55 1.25
500510 Larsen & Toubro Capital Goods 0.90 6.85
500520 Mahindra & Mahindra Limited Transport Equipments 0.75 1.71
532500 Maruti Suzuki Transport Equipments 0.50 1.71
532541? NIIT Technologies Information Technology 0.15 2.03
532555 NTPC Power 0.15 2.03
500304? NIIT Information Technology 0.15 2.03
500312 ONGC Oil & Gas 0.20 3.87
532712 Reliance Communications Telecom 0.35 0.92
500325 Reliance Industries Oil & Gas 0.50 12.94
500390 Reliance Infrastructure Power 0.65 1.19
500112 State Bank of India Finance 0.45 4.57
500900 Sterlite Industries Metal, Metal Products, and Mining 0.45 2.39
524715 Sun Pharmaceutical Industries Healthcare 0.40 1.03
532540 Tata Consultancy Services Information Technology 0.25 3.61
500570 Tata Motors Transport Equipments 0.55 1.66
500400 Tata Power Power 0.70 1.63
500470 Tata Steel Metal, Metal Products & Mining 0.70 2.88
507685 Wipro Information Technology 0.20 1.61

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One Response to “MF0010– Q.2 From the website of BSE India, explain how the BSE Sensex is calculated.”

Comment from manish
Time May 30, 2012 at 5:51 pm

not exactly formatted ans

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