Stock market is a place where majority of people are interested in. We have got thousands of queries related to Index calculation (Sensex & NIFTY). In this article we explained clearly about the calculation of Index. Earlier we have published a number of articles related to stock market and we are very happy to know that you are benefitted with that information. Stock market is a place where you can make huge money. At the same time the possibility of losing money is also very high. Before trading you should have a clear idea about the market like how it works, how trading is done, what are the factors to be considered while trading, etc. In our previous articles we have given all such information. This article will help you to understand about the free float market capitalisation and Index calculation technique.
Stock is the smallest unit of ownership of a company in other words stock is a share in the ownership of the company. Stock is also called as share and equity. If a person purchases stocks of a company it means that he is one of the owners of the company, and ownership increases as he goes on purchasing more amount of stocks. Technically speaking a shareholder of a company owns a small part of every assets of the company such as building, furniture, trademarks, etc. A share holder holds ownership in all tangible and intangible assets of the company.
Investing in stock market is a very popular option among young investors. Stock markets have the potential of offering high returns over a short period of time. Stock markets can also bring down your investment to zero in no time, if the stock markets are taken lightly or casually. You shouldn’t invest in stock markets if you don’t have the knowledge on how they work. It is as good as gambling or speculation or trying your luck if you invest without knowledge.
A stock is defined as the smallest unit of ownership of a listed company. By purchasing stocks of a company, you become one of the owners of the company. The percentage of stake you hold in a company directly depends on the number of equity shares you hold. Your ownership of the company increases with the increase in number of shares you hold. A shareholder partially owns each and every tangible and intangible asset of the company.
A stock exchange is a facility in which stock brokers and traders buy and sell securities like shares, bonds and other financial instruments. Stock exchanges are a continuous auction market, in which buyers and sellers transact. Most stock exchanges today are digitized and offer an online platform for trading purposes. A company must be listed on a stock exchange for its securities to be traded.
National Stock Exchange NSE, and Bombay Stock Exchange BSE, is the most popular stock exchanges in India. BSE was established in 1875 and is located in Mumbai. BSE is Asia’s oldest stock exchange. BSE is world’s 10th largest stock exchange with a market capitalization of USD 2.3 trillion.
NSE was established in 1992 and is the country’s first demutualized electronic exchange. NSE is located in Mumbai, the financial capital of India. NSE has a market capitalization of USD 2.27 trillion.
The Sensex is a free float market index of 30 well established and financially strong companies that are listed on the Bombay Stock Exchange, BSE.
The Nifty is a National Stock Exchange NSE’s benchmark broad based stock market index. Nifty is also referred to as Nifty50. Nifty represents the weighted average of stocks of 50 companies across 12 sectors.
The BSE Sensex is also referred to as S&P Bombay Stock Exchange Sensitive Index or just Sensex. Sensex was introduced on 1st April 1979. Sensex is referred to as the pulse of the Indian stock market. The base value of Sensex was taken as 100 at the time of introduction. In July 2001, the BSE launched Dollex 30, the dollar linked version of Sensex.
As per the latest data, full market capitalization of Sensex is USD 760 billion and free float market capitalization is USD 419 billion. The highest value that Sensex has struck so far is 39,989.65 on 29th August 2018.
Below table shows the biggest single day gains of Sensex:
Date |
Points |
18-May-09 |
2,110.79 points |
25-Jan-08 |
1,139.92 points |
25-Mar-08 |
928 points |
14-Nov-07 |
893.58 points |
23-Oct-07 |
878.85 points |
23-Jan-08 |
864.13 points |
23-Jul-08 |
838.08 points |
31-Oct-08 |
743.55 points |
4-May-09 |
731 points |
Below table shows the biggest slumps of Sensex in a single day:
Date |
Points |
28-Apr-92 |
570 |
17-May-04 |
565 |
15-May-06 |
463 |
18-May-06 |
826 |
19-May-06 |
453 |
22-May-06 |
457 |
2-Apr-07 |
617 |
1-Aug-07 |
615 |
16-Aug-07 |
642.7 |
17-Oct-07 |
717.43 |
21-Nov-07 |
678.18 |
17-Dec-07 |
769.48 |
18-Jan-08 |
687.82 |
21-Jan-08 |
1,408.35 |
22-Jan-08 |
875 |
11-Feb-08 |
833.98 |
3-Mar-08 |
900.84 |
13-Mar-08 |
770.63 |
17-Mar-08 |
951.03 |
31-Mar-08 |
726.85 |
27-Jun-08 |
600 |
15-Sep-08 |
710 |
6-Oct-08 |
724.62 |
10-Oct-08 |
792.17 |
24-Oct-08 |
704 |
7-Jan-09 |
749.05 |
6-Jul-09 |
869.65 |
17-Aug-09 |
626.71 |
12-Nov-10 |
432 |
16-Nov-10 |
444.55 |
4-Feb-11 |
441.92 |
24-Feb-11 |
545.92 |
22-Sep-11 |
704 |
27-Feb-12 |
477.82 |
13-May-13 |
430.65 |
31-May-13 |
455.1 |
20-Jun-13 |
526.41 |
6-Aug-13 |
449.22 |
16-Aug-13 |
769.41 |
27-Aug-13 |
590.05 |
3-Sep-13 |
651.47 |
18-Nov-13 |
451.32 |
8-Jul-14 |
517.97 |
16-Dec-14 |
538.12 |
6-Jan-15 |
854.86 |
30-Jan-15 |
498.82 |
9-Feb-15 |
490.52 |
9-Mar-15 |
604.17 |
26-Mar-15 |
654.25 |
5-May-15 |
722 |
24-Aug-15 |
1,624.51 |
22-Sep-15 |
541.14 |
4-Jan-16 |
537.55 |
7-Jan-16 |
554.5 |
11-Feb-16 |
807.07 |
11-Nov-16 |
698.86 |
2-Feb-18 |
839.91 |
4-Oct-18 |
806.47 |
5-Oct-18 |
800.51 |
History Of Nifty
National Stock Exchange’s Nifty50 is a popular stock index in India. It was launched on 1st April 1996. Nifty50 is reported be the World’s most actively traded contract. The base value of Nifty50 is set at 1000 and a base capital of Rs 2.06 trillion. Nifty50 all time high is recorded at 11760 on AUG 28 2018.
Below mentioned table shows the biggest slumps in Nifty50:
Date |
Points |
28-Oct-97 |
8% |
21-Jan-08 |
10% |
16-Aug-13 |
234.4 Points |
24-Aug-15 |
490.9 Points |
24-Jun-16 |
181.5 Points |
11-Nov-16 |
229.45 Points |
2-Feb-18 |
256.30 Points |
24-Sep-18 |
175.55 Points |
4-Oct-18 |
303.20 Points |
5-Oct-18 |
282.80 Points |
Initially, Sensex used weighted market capitalization methodology. The methodology was changed to free float market capitalization in 2003.
Steps to calculate Sensex:
1) Sensex comprises of the stocks of 30 different companies. These companies are selected based on various criteria.
2) Market capitalization of these 30 companies is determined.
3) Free float market capitalization of these companies is determined. The market capitalization is multiplied with the free float factor to determine the free float market capitalization.
4) Free float market capitalization of all the 30 companies are summed up to arrive at total free float market capitalization.
5) Formula to calculate Sensex is as mentioned below:
Sensex = (total free-float market capitalization/ Base market capitalization) * Base index value.
6) The base year to consider for calculating Sensex is 1978-79.
Below mentioned companies constitute Sensex:
Asian Paints
Axis Bank
Bajaj Auto
Bajaj Finance
Bharti Airtel
Coal India
HDFC Bank
HCL Technologies
Hero MotoCorp
Hindustan Unilever
Housing Development Finance Corporation
ICICI Bank
IndusInd Bank
Infosys
ITC
Kotak Mahindra Bank
Larsen & Toubro
Mahindra & Mahindra
Maruti Suzuki
NTPC
Oil and Natural Gas Corporation
Power Grid Corporation of India
Reliance Industries
State Bank of India
Sun Pharmaceutical
Tata Consultancy Services
Tata Motors
Tata Motors DVR
Tata Steel
Vedanta
Yes Bank
Nifty is an index that is based on the market capitalization. Nifty consists of market capitalization of companies weighted by its effect over the index. Therefore, the company with higher market capitalization will have more effect on the index when compared to a smaller company.
Formula to calculate Nifty is as shown below:
Index Value = Current Market Value / Base Market Capital * Base Index Value (1000)
List of companies constituting Nifty50:
Company Name
Adani Ports & SEZ Limited
Asian Paints Ltd
Axis Bank
Bajaj Auto
Bajaj Finance
Bajaj Finserv
Bharti Airtel
Bharti Infratel Ltd.
BPCL
Cipla
Coal India
Dr. Reddy's Laboratories
Eicher Motors
GAIL
Grasim Industries
HCL Technologies
HDFC
HDFC Bank
Hero MotoCorp
Hindalco Industries
Hindustan Unilever
HPCL
ICICI Bank
Indiabulls Housing Finance
IndusInd Bank
Infosys
IOC
ITC Limited
JSW Steel
Kotak Mahindra Bank
Larsen & Toubro
Mahindra & Mahindra
Maruti Suzuki
NTPC Limited
ONGC
PowerGrid Corporation of India
Reliance Industries
State Bank of India
Sun Pharmaceutical
Tata Consultancy Services
Tata Motors
Tata Steel
Tech Mahindra
Titan Company
UltraTech Cement
United Phosphorus Limited
Vedanta
Wipro
Yes Bank
Zee Entertainment Enterprises
Sensex is an index of BSE while Nifty is an index of NSE. Nifty is more diversified than Sensex as it is comprised of stocks of 50 companies while the latter is of 30 companies.
Initially stocks were represented by share certificates which worked as the proof of ownership of the company but now it is dematerialized and every trading transaction happens through computer using DEMAT accounts. There are many stock exchanges in our country like BSE, NSE, Calcutta stock exchange, Bangalore Stock Exchange, etc. But NSE and BSE are major among them most of the stocks are traded in these two Exchanges.
SENSEX Meaning
Sensex stands for “sensitive index”, it represents BSE (Bombay Stock Exchange). Sensex indicates all major companies of BSE. Sensex is calculated using share prices of 30 major companies which are listed in BSE. If the Sensex goes up it means that share values of most of the major companies have gone up and vice versa.
See Also: Sensex Historical Data
Nifty indicates NSE; it is the leading index for large companies in the National Stock Exchange of India. It consists of 50 companies representing 24 sectors of the economy. NIFTY represents approximately 47% of the traded value of all stocks on the National Stock Exchange. It is calculated using base year 1995 and base index value 1000.
Below given are the criteria for selecting stocks to calculate Index
Market capitalization is the total worth of all outstanding (issued) shares of a company. It represents the total worth of a company.
Market capitalization= No of shares outstanding x market price of share
Free float concept is an index construction methodology which makes use of free float shares in the market. Free float market capitalization is the total worth of all shares of a company which are available for trading in the open market. These shares are called free float shares and are available for trading by anyone.
See Also: How does stock market work?
Example: Company ‘X’ issues 1000 shares, out of which 200 shares held by government, 500 shares by directors of the company and remaining 300 shares are available in the open market for trading. Market price of share is 10 Rs.
Here;
Total Shares = 1000
Shares Held by Government = 200
Shares Held by Directors = 500
Shares available in the Open Market = 300
Market price of share = 10
Here total market capitalization of the company is 1000 X 10 = 10000 and
Free float market capitalization of the company is 300 X 10 = 3000
According to the rules of BSE any shares which do not fall under the following categories are considered as free float (open market) shares.
Periodically, every listed company has to submit holdings information i.e. who all are holding the shares of the company, to the exchange. Based on this free float factor for each company is calculated.
Free float factor = No of shares available for trading in the open market / Total No of outstanding shares of the company.
Free float factor of each company has to be rounded of to the higher multiple of 5 and company is considered among one of the free float range.
% Free-Float |
Free-Float Factor |
% Free-Float |
Free-Float Factor |
>0 – 5% |
0.05 |
>50 – 55% |
0.55 |
>5 – 10% |
0.1 |
>55 – 60% |
0.6 |
>10 – 15% |
0.15 |
>60 – 65% |
0.65 |
>15 – 20% |
0.2 |
>65 – 70% |
0.7 |
>20 – 25% |
0.25 |
>70 – 75% |
0.75 |
>25 – 30% |
0.3 |
>75 – 80% |
0.8 |
>30 – 35% |
0.35 |
>80 – 85% |
0.85 |
>35 – 40% |
0.4 |
>85 – 90% |
0.9 |
>40 – 45% |
0.45 |
>90 – 95% |
0.95 |
>45 – 50% |
0.5 |
>95 – 100% |
1 |
Sensex calculation is practiced since 1986. Initially it had been calculated using total market capitalization method but the methodology changed to free float market capitalization since from 2003. Hence these days Sensex is calculated using free float market capitalization of 30 major BSE listed companies and by using base value 100 (1978-79). SENSEX is calculated for every 15 seconds.
SENSEX = (sum of free float market cap of 30 major companies of BSE) X Index value in 1978-79 / Market cap value in 1978-79.
Example: suppose BSE index (SENSEX) consist of only two stocks such as ‘X’ and ‘Y’
Company ‘X’ has 1000 outstanding shares out of which only 500 are available for trading in open market. Market price of share is Rs.100.
Company ‘Y’ has 2000 outstanding shares out of which 1000 shares are held by promoters and remaining 1000 are free float shares (open market shares). Market price of share is Rs.50.
Calculation of Market Capitalization
Stock |
Issued Stocks |
Issued Stocks |
Market Cap. |
X |
1000 |
100 |
100000 |
Y |
2000 |
50 |
100000 |
Calculation of Free Float market capitalization
Stock |
Open Market Stocks |
Issued Stocks |
Market Cap. |
X |
500 |
100 |
50000 |
Y |
1000 |
50 |
50000 |
Here;
Sum of free float market cap of company X and company Y is 50000+50000 = 100000 Assume market cap during 1978-79 is 25000
Now Apply formula;
100000*100/25000 = 400
The same method is used to calculate NSE nifty but includes two major changes.
NIFTY = (Sum of free flow market cap of 50 major stocks of NSE) X Index value in 1995 / market cap value in 1995.
This article is specially prepared by considering our viewers request. Lakhs of people are trading in the stock market but majority of them didn’t know that how index is calculated. We believe that this article had helped you to make a clear idea about index calculation and related issues. For any queries related to this topic kindly contact IndianMoney.com or drop a comment in the comment box.
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