How is SENSEX decided?

Sensex, a stock market indexes was launched in 1986 by BSE (Bombay Stock Exchange). It evaluates the fluctuations in stock prices of 30 big companies in terms of market value, turnover, profit etc. The value of the Sensex is calculated on every minute basis. If the Sensex is going up that means the stock price of most companies of BSE is increasing and if the Sensex is going down that means the share price of most BSE companies is decreasing. The base year of the Sensex is 1978-79 and the base index value was set at 100.

How Sensex calculated with Example

To start with, let’s assume there are 2 companies X and Y listed on BSE and Sensex is currently on 30,000 points. Assume that the worth of 1 share of ‘X’ is Rs.
200 and it has a total outstanding share of 10000 whereas the worth of 1 share of ‘Y’ is Rs. 500 and its total outstanding share is 7500. So the total capitalization is:

(200 x 10000)+(500 x 7500) = Rs. 57.50 lacs

Now suppose the next day the share price of the ‘X’ company rises to 25% (200 + 25% of 200) which is 250, and the price of the ‘Y’ company’s shares decreases to 10% (500-10% of 500s) which is 450. Now the total market capitalization of BSE at these new share prices will be:

(250 x10000) + (450x 7500)= Rs. 58.75 lacs

That means the total market capitalization rise from 58.75 lacs form the previous level of Rs. 57.50 lacs; which is showing a 2.17% increase in the market capitalization of the BSE.

So due to this increase in price the Sensex will reach 30651, which is 2.17% higher than 30000.

 

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