Sensex, short for Sensitive Index, is the benchmark stock market index of the Bombay Stock Exchange (BSE) in India. It represents the overall performance of the top 30 actively traded stocks across various sectors listed on the BSE. Sensex is one of the key indicators of the Indian stock market’s health and investor sentiment.

The calculation of the Sensex involves a weighted average of the market capitalization of its constituent stocks. Here’s a general overview of how Sensex is calculated:

  1. Selection of Constituent Stocks: The BSE considers a set of criteria to select the 30 stocks that will form the Sensex. These criteria include market capitalization, trading volume, and industry representation. The selection is periodically reviewed and may change over time to reflect the evolving market conditions.
  2. Free-Float Market Capitalization: The Sensex calculation is based on the free-float market capitalization of the constituent stocks. Free-float market capitalization refers to the market value of a company’s outstanding shares that are available for trading in the market.
  3. Base Year and Base Value: The Sensex has a base year and a base value. The base year represents a specific reference year, and the base value is the index value assigned to the Sensex during that year. The base year and base value are used to calculate the index movement and track the performance of the market.
  4. Calculation Method: The Sensex is calculated using the formula: Sensex = (Sum of the free-float market capitalization of constituent stocks) / (Index Divisor) The index divisor is a scaling factor used to maintain continuity in the index values over time. It ensures that changes in the index are not affected by corporate actions such as stock splits, rights issues, or bonus issues.
  5. Weightage and Rebalancing: Each constituent stock in the Sensex has a specific weightage based on its free-float market capitalization. The weightage of stocks may change due to factors such as stock price movements and corporate actions. The index is periodically rebalanced to adjust for changes in the weightage of constituent stocks.

It’s important to note that the exact methodology and calculation details of the Sensex may be subject to periodic revisions by the BSE to maintain its relevance and accuracy. The objective of the Sensex is to provide a comprehensive snapshot of the Indian stock market and serve as a benchmark for investors and market participants.