priya

• Nov 26th, 2007

 

SENSEX is calculated using the "Free-float Market Capitalization" methodology. As per this 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 further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the 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. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds and disseminated in real time

vasudeo007

 Profile Answers by vasudeo007 

• Aug 18th, 2008

 

Sensex or for that matter any index in any capital market acts as the barometer of the economy. When economy is on rise then the index shoots up and vice-versa.

There is presumed to be co-relation between earnings of a company and its market price. When economy is on rise, industry is on rise and so market price.

Sensex is calculated on the basis of "Free Float Market Capitalisation" methodology.

This is methodology wherein formula is - Last traded price * total number of listed shares

This gives a big number as answer. This big number for all companies are added and total market capitalisation is calculated.

So market capitalisation is taken of 1979 as base 100.

So "market cap on 1979 : 100
       today's mkt cap       : ?"

Vasudeo