How Sensex is Calculated -Understanding Index formation

In the last post we understood the meaning of BSE Sensex and its uses. In this post let’s understand how to calculate Sensex.

*Read: Sensex Meaning Simplified – What is Sensex?


Continuing our analogy with Indian cricket team, we can understand how the companies are selected for Sensex.

As you know well, players are selected to the Indian team based on various factors such as their performance in the domestic cricket, suitability to the current tournament etc. They are also selected by different categories such as batsman, bowler and wicket keeper.

Similarly, companies are selected to Sensex from different sectors such banking, IT, Consumer goods etc

But how the performance of a company is measured?

Let us introduce a term called “Market Capitalization”.  If you are very new to market, it is very important to understand that, a company whose shares are trading at Rs 1000 may not be bigger or more valued than another company trading at Rs50. Value and Price are totally different. You should also consider the number of shares issued by both the companies.

.How do we calculate the market capitalization of a company?

.Just multiply the current share price with the number of shares issues by the company. With this you can compare value of two companies.

We have shown the Market capitalization of Reliance and Maruti by taking the data from BSE website.

Sl NoName of the CompanyCurrent Share PriceNumber of Shares (Lakhs)Market Capitalization (Crores)

As you can see even though share price of Maruti is much higher, as you are aware reliance is much bigger and valued than the Maruti.

But out of 323Lakhs shares of Reliance, some quantities are held by promoters and government etc. The remaining shares are called “Free float”.

Don’t get confused by the fancy word. Just understand that Free float is nothing but the number of shares available for general public to buy/sell on the exchanges.

Now if we calculate the market capitalization using Free float, it is called Free float market capitalization. As simple as that!.


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Following table displays the Free Float Market Capitalization data of two companies, which we have taken again from BSE website.

Sl NoName of the CompanyCurrent Share PriceMarket Capitalization (Crores) Free Float market Capitalization (Crores)

Like this, Free Float Market Capitalization is calculated for all the 5000 odd companies listed on the BSE and top 30 companies make it to the Sensex.

Now we understood the team structure, but we need to arrive at the line up right?. Who is the Captain, Opening Batsman etc.

Drawing parallel, all the companies in Sensex will not have same weightage. Depending on the Free Float Market Cap, each company is assigned with weightage percentage. Higher the Free Float Market cap, higher the weightage.

We have calculated the weightage of each company in the following table.

Sr NoCompany NameFree Float Market Cap (Cr)Weightage
Sensex FFMC2429413100.00%

You can also find the live value of Free Float Market Capitalization of Sensex here.

But Hey, You still haven’t explained how BSE Sensex is calculated?!

Value of the sensex can be calculated using the formula.

          Sensex = (Free Float market Cap/Base Value) X 100                    (a)

All the terms in above formula are known except “Base Value”, isn’t it?

BSE keeps adjusting the Base Value since companies do change in Sensex and because of special events like bonus issue and right issue.

Base Value for the year 1978-79 was 100. (That means if you have invested Rs100 in sensex in 1978-79, you money would have grown to present value of the sensex!).

But now the problem is BSE does not publish the current Base Value. So let’s do reverse calculation using the current Sensex value of 28835 using the above formula.

Base Price   = (FFMC / Sensex) *100
                     = (2429413/28835) *100
Base Price   = 8425.23 

Now you can calculate the value of the Sensex any time using this Base value in formula (a) until BSE changes it!

Just to summarize the steps on How Sensex is Calculated:

1) Find out the outstanding shares of the company

2) Derive the Free Float market Capitalization by multiplying the number of outstanding shares with current price

3) Sort and select the top 30 companies with highest Free Float Market Capitalization

4) Add  Free Float Market Capitalization of individual 30 companies

5) Divide the by the Base Price and then multiply by 100 to arrive at value of Sensex

Read : Best Stock Market Brokerage Companies in India

Also Read : Introduction to Demat Account and Procedure to open it Online

That’s all for now! And yeah, if you think this post was useful or interesting let us know by dropping  a comment or just sharing it through the social buttons on your left!



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