Introduction

SENSEX, first compiled in 1986, was calculated on a "Market Capitalization!ei"#ted" met#odolo"$ of %&
component stocks representin" lar"e, wellesta'lis#ed and financiall$ sound companies across ke$
sectors( )#e 'ase $ear of SENSEX was taken as 19*8*9( SENSEX toda$ is widel$ reported in 'ot#
domestic and international markets t#rou"# print as well as electronic media( +t is scientificall$ desi"ned
and is 'ased on "lo'all$ accepted construction and re,iew met#odolo"$( Since Septem'er 1, -&&%,
SENSEX is 'ein" calculated on a freefloat market capitalization met#odolo"$( )#e "freefloat market
capitalizationwei"#ted" met#odolo"$ is a widel$ followed inde. construction met#odolo"$ on w#ic#
ma/orit$ of "lo'al e0uit$ indices are 'ased1 all ma/or inde. pro,iders like MSC+, 2)SE, S)3XX, S45 and
6ow 7ones use t#e freefloat met#odolo"$(
)#e "rowt# of t#e e0uit$ market in +ndia #as 'een p#enomenal in t#e present decade( 8i"#t from earl$
nineties, t#e stock market witnessed #ei"#tened acti,it$ in terms of ,arious 'ull and 'ear runs( +n t#e late
nineties, t#e +ndian market witnessed a #u"e frenz$ in t#e 9)M)9 sectors( More recentl$, real estate cau"#t
t#e fanc$ of t#e in,estors( SENSEX #as captured all t#ese #appenin"s in t#e most /udicious manner( 3ne
can identif$ t#e 'ooms and 'usts of t#e +ndian e0uit$ market t#rou"# SENSEX( :s t#e oldest inde. in t#e
countr$, it pro,ides t#e time series data o,er a fairl$ lon" period of time ;from 19*9 onwards<( Small
wonder, t#e SENSEX #as 'ecome one of t#e most prominent 'rands in t#e countr$(
Index Specification:

Base Year 19*8*9
Base Index Value 1&&
Date of Launch
01-01-1986
Method of calculation =aunc#ed on full market capitalization met#od and effecti,e Septem'er &1, -&&%, calculation
met#od s#ifted to freefloat market capitalization(
Number of scrips %&
Index Constituents Click #ere for list of constituents
Index calculation
frequenc
8eal )ime
Index calculation
and Maintenance
Click #ere for +nde. calculation and maintenance
Index !each Click #ere for scripwise, sector wise market capitalization, wei"#ta"e etc(
Mar"et Capitali#ation
and $urno%er
Co%era&e
Click #ere for market capitalization and turno,er co,era"e
'istorical Values of
Index
+nde., 5rice Earnin"s, 5rice to >ook ?alue ratio and 6i,idend @ield A
'istorical Notices Click to searc# Bistorical Notices on +nde. 8eplacements
'istorical
!eplacements
Click #ere for #istorical replacements
S(NS() Calculation Methodolo&
SENSEX is calculated usin" t#e "2reefloat Market Capitalization" met#odolo"$, w#erein, t#e le,el of
inde. at an$ point of time reflects t#e freefloat market ,alue of %& component stocks relati,e to a 'ase
period( )#e market capitalization of a compan$ is determined '$ multipl$in" t#e price of its stock '$ t#e
num'er of s#ares issued '$ t#e compan$( )#is market capitalization is furt#er multiplied '$ t#e freefloat
factor to determine t#e freefloat market capitalization(
)#e 'ase period of SENSEX is 19*8*9 and t#e 'ase ,alue is 1&& inde. points( )#is is often indicated '$
t#e notation 19*8*9C1&&( )#e calculation of SENSEX in,ol,es di,idin" t#e freefloat market
capitalization of %& companies in t#e +nde. '$ a num'er called t#e +nde. 6i,isor( )#e 6i,isor is t#e onl$
link to t#e ori"inal 'ase period ,alue of t#e SENSEX( +t keeps t#e +nde. compara'le o,er time and is t#e
ad/ustment point for all +nde. ad/ustments arisin" out of corporate actions, replacement of scrips etc(
6urin" market #ours, prices of t#e inde. scrips, at w#ic# latest trades are e.ecuted, are used '$ t#e
tradin" s$stem to calculate SENSEX on a continuous 'asis(
Dollex*+,
>SE also calculates a dollarlinked ,ersion of SENSEX and #istorical ,alues of t#is inde. are a,aila'le
since its inception( ;2or more details click 96olle. series of >SE indices9<
S(NS() * Scrip Selection Criteria
)#e "eneral "uidelines for selection of constituents in SENSEX are as followsD
1. Listed 'istor:)#e scrip s#ould #a,e a listin" #istor$ of at least % mont#s at >SE( E.ception ma$
'e considered if full market capitalization of a newl$ listed compan$ ranks amon" top 1& in t#e list
of >SE uni,erse( +n case, a compan$ is listed on account of mer"erE demer"erE amal"amation,
minimum listin" #istor$ would not 'e re0uired(

2. $radin& -requenc:)#e scrip s#ould #a,e 'een traded on eac# and e,er$ tradin" da$ in t#e last
t#ree mont#s at >SE( E.ceptions can 'e made for e.treme reasons like scrip suspension etc(

3. -inal !an":)#e scrip s#ould fi"ure in t#e top 1&& companies listed '$ final rank( )#e final rank is
arri,ed at '$ assi"nin" *FA wei"#ta"e to t#e rank on t#e 'asis of t#reemont# a,era"e full
market capitalization and -FA wei"#ta"e to t#e li0uidit$ rank 'ased on t#reemont# a,era"e dail$
turno,er 4 t#reemont# a,era"e impact cost(

4. Mar"et Capitali#ation .ei&hta&e:)#e wei"#ta"e of eac# scrip in SENSEX 'ased on t#ree
mont# a,era"e freefloat market capitalization s#ould 'e at least &(FA of t#e +nde.(

5. Industr/Sector !epresentation:Scrip selection would "enerall$ take into account a 'alanced
representation of t#e listed companies in t#e uni,erse of >SE(

6. $rac" !ecord:+n t#e opinion of t#e >SE +nde. Committee, t#e compan$ s#ould #a,e an
accepta'le track record(

0nderstandin& -ree*float Methodolo&
Concept
2reefloat met#odolo"$ refers to an inde. construction met#odolo"$ t#at takes into consideration onl$ t#e
freefloat market capitalization of a compan$ for t#e purpose of inde. calculation and assi"nin" wei"#t to
stocks in t#e inde.( 2reefloat market capitalization takes into consideration onl$ t#ose s#ares issued '$
t#e compan$ t#at are readil$ a,aila'le for tradin" in t#e market( +t "enerall$ e.cludes promoters9 #oldin",
"o,ernment #oldin", strate"ic #oldin" and ot#er lockedin s#ares t#at will not come to t#e market for
tradin" in t#e normal course( +n ot#er words, t#e market capitalization of eac# compan$ in a freefloat
inde. is reduced to t#e e.tent of its readil$ a,aila'le s#ares in t#e market(
Su'se0uentl$ all >SE indices wit# t#e e.ception of >SE5SG inde. #a,e adopted t#e freefloat
met#odolo"$(
Ma1or ad%anta&es of -ree*float Methodolo&
: 2reefloat inde. reflects t#e market trends more rationall$ as it takes into consideration onl$
t#ose s#ares t#at are a,aila'le for tradin" in t#e market(

2reefloat Met#odolo"$ makes t#e inde. more 'road'ased '$ reducin" t#e concentration of top
few companies in +nde.(

: 2reefloat inde. aids 'ot# acti,e and passi,e in,estin" st$les( +t aids acti,e mana"ers '$
ena'lin" t#em to 'enc#mark t#eir fund returns ,isH ,is an in,esti'le inde.( )#is ena'les an
appletoapple comparison t#ere'$ facilitatin" 'etter e,aluation of performance of acti,e
mana"ers( >ein" a perfectl$ replica'le portfolio of stocks, a 2reefloat ad/usted inde. is 'est
suited for t#e passi,e mana"ers as it ena'les t#em to track t#e inde. wit# t#e least trackin" error(

2reefloat Met#odolo"$ impro,es inde. fle.i'ilit$ in terms of includin" an$ stock from t#e uni,erse
of listed stocks( )#is impro,es market co,era"e and sector co,era"e of t#e inde.( 2or e.ample,
under a 2ullmarket capitalization met#odolo"$, companies wit# lar"e market capitalization and
low freefloat cannot "enerall$ 'e included in t#e +nde. 'ecause t#e$ tend to distort t#e inde. '$
#a,in" an undue influence on t#e inde. mo,ement( Bowe,er, under t#e 2reefloat Met#odolo"$,
since onl$ t#e freefloat market capitalization of eac# compan$ is considered for inde. calculation,
it 'ecomes possi'le to include suc# closel$#eld companies in t#e inde. w#ile at t#e same time
pre,entin" t#eir undue influence on t#e inde. mo,ement(

Ilo'all$, t#e 2reefloat Met#odolo"$ of inde. construction is considered to 'e an industr$ 'est
practice and all ma/or inde. pro,iders like MSC+, 2)SE, S45 and S)3XX #a,e adopted t#e
same( MSC+, a leadin" "lo'al inde. pro,ider, s#ifted all its indices to t#e 2reefloat Met#odolo"$
in -&&-( )#e MSC+ +ndia Standard +nde., w#ic# is followed '$ 2orei"n +nstitutional +n,estors ;2++s<
to track +ndian e0uities, is also 'ased on t#e 2reefloat Met#odolo"$( N:S6:J1&&, t#e
underl$in" inde. to t#e famous E.c#an"e )raded 2und ;E)2< JJJ is 'ased on t#e 2reefloat
Met#odolo"$(

Definition of -ree*float
S#are#oldin" of in,estors t#at would not, in t#e normal course come into t#e open market for tradin" are
treated as 9Controllin"E Strate"ic Boldin"s9 and #ence not included in freefloat( Specificall$, t#e followin"
cate"ories of #oldin" are "enerall$ e.cluded from t#e definition of 2reefloatD
S#ares #eld '$ foundersEdirectorsE ac0uirers w#ic# #as control element

S#ares #eld '$ personsE 'odies wit# "Controllin" +nterest"

S#ares #eld '$ Io,ernment as promoterEac0uirer

Boldin"s t#rou"# t#e 26+ 8oute

Strate"ic stakes '$ pri,ate corporate 'odiesE indi,iduals

E0uit$ #eld '$ associateE"roup companies ;cross#oldin"s<

E0uit$ #eld '$ Emplo$ee !elfare )rusts

=ockedin s#ares and s#ares w#ic# would not 'e sold in t#e open market in normal course(

The remaining shareholders fall under the Free-float category.
Determinin& -ree*float -actors of Companies
>SE #as desi"ned a 2reefloat format, w#ic# is filled and su'mitted '$ all inde. companies on a 0uarterl$
'asis( ;2ormat a,aila'le on www('seindia(com<( >SE determines t#e 2reefloat factor for eac# compan$
'ased on t#e detailed information su'mitted '$ t#e companies in t#e prescri'ed format( 2reefloat factor
is a multiple wit# w#ic# t#e total market capitalization of a compan$ is ad/usted to arri,e at t#e 2reefloat
market capitalization( 3nce t#e 2reefloat of a compan$ is determined, it is roundedoff to t#e #i"#er
multiple of F and eac# compan$ is cate"orized into one of t#e -& 'ands "i,en 'elow( : 2reefloat factor of
sa$ &(FF means t#at onl$ FFA of t#e market capitalization of t#e compan$ will 'e considered for inde.
calculation(
-ree*float Bands:
2 -ree*-loat -ree*-loat -actor 2 -ree*-loat -ree*-loat -actor
K& FA &(&F KF& FFA &(FF
KF 1&A &(1& KFF 6&A &(6&
K1& 1FA &(1F K6& 6FA &(6F
K1F -&A &(-& K6F *&A &(*&
K-& -FA &(-F K*& *FA &(*F
K-F %&A &(%& K*F 8&A &(8&
K%& %FA &(%F K8& 8FA &(8F
K%F L&A &(L& K8F 9&A &(9&
KL& LFA &(LF K9& 9FA &(9F
KLF F&A &(F& K9F 1&&A 1(&&
Index Closure 3l&orithm
)#e closin" SENSEX on an$ tradin" da$ is computed takin" t#e wei"#ted a,era"e of all t#e trades on
SENSEX constituents in t#e last %& minutes of tradin" session( +f a SENSEX constituent #as not traded in
t#e last %& minutes, t#e last traded price is taken for computation of t#e +nde. closure( +f a SENSEX
constituent #as not traded at all in a da$, t#en its last da$9s closin" price is taken for computation of +nde.
closure( )#e use of +nde. Closure :l"orit#m pre,ents an$ intentional manipulation of t#e closin" inde.
,alue(
Maintenance of S(NS()
3ne of t#e important aspects of maintainin" continuit$ wit# t#e past is to update t#e 'ase $ear a,era"e(
)#e 'ase $ear ,alue ad/ustment ensures t#at replacement of stocks in +nde., additional issue of capital
and ot#er corporate announcements like 9ri"#ts issue9 etc( do not destro$ t#e #istorical ,alue of t#e inde.(
)#e 'eaut$ of maintenance lies in t#e fact t#at ad/ustments for corporate actions in t#e +nde. s#ould not
per se affect t#e inde. ,alues(
)#e >SE +nde. Cell does t#e da$toda$ maintenance of t#e inde. wit#in t#e 'road inde. polic$
framework set '$ t#e >SE +nde. Committee( )#e >SE +nde. Cell ensures t#at SENSEX and all t#e ot#er
>SE indices maintain t#eir 'enc#mark properties '$ strikin" a delicate 'alance 'etween fre0uent
replacements in inde. and maintainin" its #istorical continuit$( )#e >SE +nde. Committee comprises of
capital market e.pert, fund mana"ers, market participants and mem'ers of t#e >SE Io,ernin" >oard(
4n*Line Computation of the Index
6urin" tradin" #ours, ,alue of t#e +nde. is calculated and disseminated on real time 'asis( )#is is done
automaticall$ on t#e 'asis of prices at w#ic# trades in +nde. constituents are e.ecuted(
3d1ustment for Bonus5 !i&hts and Ne6l Issued Capital
SENSEX calculation needs to 'e ad/usted for issue of >onus or 8i"#ts s#ares +f no ad/ustments were
made, a discontinuit$ would arise 'etween t#e current ,alue of t#e inde. and its pre,ious ,alue despite
t#e nonoccurrence of an$ economic acti,it$ of su'stance( :t t#e >SE +nde. Cell , t#e 'ase ,alue is
ad/usted, w#ic# is used to alter market capitalization of t#e component stocks to arri,e at t#e SENSEX
,alue(
)#e >SE +nde. Cell keeps a close watc# on t#e e,ents t#at mi"#t affect t#e inde. on a re"ular 'asis and
carries out dail$ maintenance of all >SE +ndices(
3d1ustments for !i&hts Issues
!#en a compan$, included in t#e compilation of t#e inde., issues ri"#t s#ares, t#e freefloat
market capitalization of t#at compan$ is increased '$ t#e num'er of additional s#ares issued
'ased on t#e t#eoretical ;e.ri"#t< price( :n offsettin" or proportionate ad/ustment is t#en made to
t#e >ase Market capitalization ;see 9>ase Market capitalization :d/ustment9 'elow<(

3d1ustments for Bonus Issue
!#en a compan$, included in t#e compilation of t#e inde., issues 'onus s#ares, t#e market
capitalization of t#at compan$ does not under"o an$ c#an"e( )#erefore, t#ere is no c#an"e in t#e
>ase Market capitalization, onl$ t#e 9num'er of s#ares9 in t#e formula is updated(

4ther Issues
>ase Market capitalization ad/ustment is re0uired w#en new s#ares are issued '$ wa$ of
con,ersion of de'entures, mer"ers, spinoffs etc( or w#en e0uit$ is reduced '$ wa$ of 'u$'ack
of s#ares, corporate restructurin" etc(

>ase Market capitalization :d/ustment
)#e formula for ad/ustin" t#e >ase Market capitalization is as followsD
New Market capitalization
New >ase Market capitalization C 3ld >ase Market capitalization .
3ld Market capitalization
)o illustrate, suppose a compan$ issues ri"#t s#ares w#ic# increases t#e market capitalization of t#e
s#ares of t#at compan$ '$ sa$, 8s(1&& crores( )#e e.istin" >ase Market capitalization ;3ld >ase Market
capitalization<, sa$, is 8s(-LF& crores and t#e a""re"ate market capitalization of all t#e s#ares included in
t#e inde. 'efore t#e ri"#t issue is made is, sa$ 8s(L*81 crore( )#e "New >ase Market capitalization " will
t#en 'eD
-LF& . ;L*81M1&&<
C 8s(-F&1(-L crores
L*81
)#is fi"ure of 8s( -F&1(-L crore will 'e used as t#e >ase Market capitalization for calculatin" t#e inde.
num'er from t#en onwards till t#e ne.t 'ase c#an"e 'ecomes necessar$(
Index !e%ie6 -requenc
)#e >SE +nde. Committee meets e,er$ 0uarter to discuss inde. related issues( +n case of a re,ision in
t#e +nde. constituents, t#e announcement of t#e incomin" and out"oin" scrips is made si. weeks in
ad,ance of t#e actual implementation of t#e re,ision of t#e +nde.(