Sensex Meaning: What is Sensex? How is it Calculated?

Investors need to be familiar with the basics of terminologies such as Sensex meaning, Sensex calculation, and how it works.

Let's learn more about it.

Deepak Mohoni (stock market analyst) gave the term Sensex its name. The word is a portmanteau between Sensitive Index and Sensitive.The Sensex primarily reflects the Bombay Stock Exchange (BSE) which was founded in 1875. The stock exchange didn't have an official index until January 1, 1986. This was when Sensex was created to measure the performance of Indian markets. The Sensex consists of 30 stocks that are derived from different sectors and are traded in the exchange market. The Sensex accurately reflects Indian stock market movements. The Sensex value can increase or decrease depending on the market.

Through S&P BSE Sensex, you can see the booms or busts in the stock market. BSE and S&P Dow Jones Indices formed an alliance on February 19, 2013 to calculate Sensex. Nifty is another index that India's National Stock Exchange calculates.

Sensex is a list of 30 most traded and largest stocks on BSE. It provides an indicator of India's economy. India's oldest stock index, the Sensex, is still in use. Sensex can be used by investors to monitor the overall growth and development of specific industries as well as the ups or downs of India's economy.

Calculation Methodology for Sensex

Sensex had historically used weighted market capitalization. However, from September 1, 2003, the methodology was changed to Free Float Market Capization. The same methodology is used by all major indices around the globe. The index's level directly affects the performance of 30 key stocks.

Market Capitalization * Market Capitalization * No Float Factor

Let's now see what the Free Float Factor is.

Free Float refers to the % of total shares issued by a company that are readily available for trading on the market. This excludes shares held by government officials, promoters, and others.

Let's take an example to illustrate the point: If a company has 100 shares, 30 of which are owned by the government or promoters, and 70 are open for trading, then those 70 shares will be the free-floating shares. The free float factor is 70%. Market capitalization is the company's value. Market capitalization can be calculated by multiplying the stock's price with the number issued by the company.

We hope you've learned about Sensex meaning and methodology. Now let's see how Sensex calculates. These terminologies are crucial in calculating Sensex.

How is Sensex calculated?

• The Sensex consists of 30 stocks that have been selected according to the criteria.
• All 30 companies have their Market Capitalizations determined.
• All 30 companies are required to determine their Free Float Market Capitalization.
• To get a total Free Float Market Capitalization for all 30 companies, the Free Float Market Capitalization sums up.
• The formula for Sensex= (total-free float market capitalization/Base market capitalization) * The base index value.
• 1978-79 is the base year for calculating Sensex. The base value is fixed, but must be modified. According to BSE Rs. BSE Rs.
• 100 is the base index value.

Hence,

Sensex= Free Float Market Capitalization of 30 Select Companies /25041.24 Crores* 100

(The free-float market capitalizations of 30 companies are added, which gets divided by 2501.24 crores. Then 100 is multiplied.